Are Banks Missing An Opportunity?

I was fed, clothed and educated by and on small business. My parents were consummate entrepreneurs – always innovating in their own business and exploring new business opportunities. However, the one consistency was always whom they banked with – come rain come shine, my parents banked with ‘beep’ bank. I queried why they had chosen to stay with ‘beep’ bank over all these years – despite increasingly competitive offerings from other banks and their response was simple, “Because they believed in us when we were small.”

SME banking South AfricaThere is a huge opportunity in this insight for banks when one considers the two primary reasons that small businesses have failed in a post-2008 economy; the first reason is primarily a failure as part of a supply chain in a failing economy or industry, for instance, one major client or supplier goes under and the rest of the businesses in that ‘ecology’ follow suit. Conversely, a major client may go out of business without paying for goods. The second reason is simple mismanagement and the subsequent failure of the business – whether it was being run in a boom time or in the current recession. Currently, banks do not make a distinction between small businesses that have failed to survive as part of the extraneous factors and those who have purely been mismanaged.

I propose a new approach – a new way to assess the creditworthiness of small business-owners by considering the distinction between solid individuals with the requisite experience, business acumen, and personal mettle and those who don’t. Banks need to consider a credit-based solution or product to enable the business that failed due to extraneous factors, such as those mentioned above, to get a second chance at getting their businesses on their feet again. Banks are missing a trick by indiscriminately corralling all credit-defaulting entrepreneurs into one paddock and effectively sending them into the black abyss of debt.

It is crucial to get certain entrepreneurs back on their feet because our entire country benefits from the growth in the SMME-sector, according to the SBP SME Growth Index Study (2011), 77% of all new private hiring comes from the SME sector – meaning that 77% of all new jobs are placed in the SME sector – making it a crucial avenue for job creation in our economy.

Additionally the bank will stand to recoup their losses if they back the right individual. The correct measure of the future viability of an entrepreneur would be utilising a careful combination of psychometric tools in conjunction with more traditional credit assessment tools to arrive at credit-worthiness score that would be more accurately reflective of the individual’s business-making ability.

Imagine the story-telling ability of the bank that perfects a product that is aimed at entrepreneurs who’d hit hard times in the recession. Imagine a bank that demonstrates a soul and faith in people and not the numbers they represent. Imagine being the bank that brings the statement “they believed in us when we were small” back to life. This bank will enjoy love and loyalty from the hearts and minds of South African consumers for years to come. It will also be an opportunity to recoup debt as well as make huge returns by bankrolling these individuals and their business. The bank that succeeds in harnessing this insight effectively will be profitable in more ways than their bottom-line. Who knows? Even Steve from ‘beep’ bank would want to work there.