Digital banking; new paradigm for SMEs

Small and Medium Enterprises (SMEs) represent approximately 95% of businesses across the globe and employ up to 60% of the world's active workforce. (Ayyagari et al. 2011).

The SME sector, arguably, has the best growth potential and opportunities in Ghana. The scale of growth within this space has, however, been impeded by the relatively high risk levels, as non-performing loan ratios keep soaring in tandem with lending levels.

Although local banks have shown much interest in the growth of SME businesses (through financing), these businesses have not developed as required. This has been mainly due to improper record keeping culture, less planning in the medium to long term, no business focus and largely financial indiscipline, according to Stanbic Bank.

Pearl Nkrumah, Head of SME for Stanbic Bank said lending to the SME segment of the Ghanaian market has generally been expensive for both parties – financial institutions and customers.

"In some cases, the cost of employing credit evaluators, cash collection teams, relationship managers, analysts and the support staff needed to maintain SME departments in banks overrides the revenue generated from this relationship," she said. "This is a result of increased provisioning on loan advanced to clients within this sector, which erodes revenue to meet operating expenses."

In order for banks and other financial institutions to remain profitable and to sustain their operations, interest rates on facilities advanced to SMEs tend to be high, thereby, hindering business growth, she added.

"Another common cost to both SMEs and banks is the limited scope of the collateral securities acceptable and available to secure credit facilities," said Nkrumah. "The high transaction costs and low level of development in the Ghanaian financial system also greatly affect SMEs."

SMEs, thus, require support, not only in terms of fiscal interventions, but more importantly, professional advice on how to manage their businesses. For the SME sector to be more sustainable and more profitable, banks have to have a long term strategy for SMEs and act as business incubators rather than piggy banks, Nkrumah said.

"SMEs need advisory services, cash management and availability of digital platforms," she said.

It is for this reason that Stanbic Bank has introduced a digital banking platform, which provides a personalised channel for SMEs to contact the bank, whenever they need to.

Stanbic Bank has identified that six value indicators SMEs consider when choosing a financial provider are simplicity and accessibility, quick and reliable service, convenience, easy access to finance, flexibility/suitability of offerings and advisory capabilities. The digital platform for SMEs offers an enhanced medium to get access to information in a simple cost effective way, as well as helps manage cash and grants quick access to financing.

Under this innovative intervention by Stanbic Bank, customers would be better informed on developments within their business environment to enable effective planning of business operations.

The digital banking system for SMEs will be facilitated by BizDirect), a multi-channel avenue for SMEs to contact the bank and have all issues addressed by experienced business bankers. This entails an all-encompassing technology drive where the customer is free to choose from mobile banking, internet banking or ATMs, according to preference and familiarity with the available technology. The BizDirect rollout began in March 2015 and is due to be fully operational by the end of 2015.

The use of modern financial technology such as electronic-finance and mobile-finance produces relatively faster results. For this to produce better results, Nkrumah called for the major banks to link their systems with those of the telecom companies, to allow for seamless interbank transfers and payments, as well as cash transfers and receipts that would raise the awareness of these convenient, flexible and efficient digital channels.

The benefit to SMEs is that it would remove some of the red tape from their transactions and allow them to concentrate on growing their businesses. It would also allow both SMEs and the banks to reach the wider unbanked population, thus increasing the target audience for their goods and services.

"As banks continue to introduce new digital services, there has to be a marked increase in the educational level of customers in order for the new technologies to be truly beneficial for all," she concluded.