Cashflow-based SME lending
Following IPC’s introduction of MSE lending during the China Development Bank’s China Microfinance Project (CMFP), Guilin Bank contracted IPC to strengthen its SME-lending capacities, particularly by introducing a cashflow-based SME-lending technology to selected staff. Guilin Bank has, as almost every Chinese bank, been engaged in lending to SMEs for decades; however, the approach taken often focuses exclusively on the client’s collateral (real estate), and the relationship of the client with the bank and its staff. The bank engaged IPC to introduce cashflow-based SME lending operations after experiencing the benefits of a cashflow-based MSE-lending approach, which focuses on client capacity to service a loan, Moreover, the bank had recognised the opportunity to improve its market potential in this segment by adopting a cash-flow based approach.
IPC implemented the following tasks:
- Assessing the bank’s existing SME lending, particularly in a selected branch focusing on SME-clients
- Based on this assessment, drafting a set of procedures and policies: job descriptions, recruitment strategy, product design and pricing, as well as marketing strategy
- With the involvement of the Bank’s risk management and credit department, developing an SME lending package and operational plan
- Assessing the suitability of the IT system for SME lending operations, including proposals for IT modifications
- Selecting five SME loan officers from among the bank’s MSE loan officers
- Providing classroom training to a total of 19 participants: SME loan officers, back office staff and stakeholders
- Implementing the new approach through on-the-job training and coaching of dedicated lending and supervisory staff in all aspects and steps of the credit cycle in a pilot branch
IPC’s results-oriented and pragmatic approach aimed to sustainably introduce a cashflow-based SME lending approach, including disbursement of the first SME loans under the new approach. At the end of the three-month assignment, five dedicated SME loan officers had already disbursed six SME loans. The loans totalled RMB 15.3 million (around EUR 2 million) and were used for working capital and investment loan purposes by business engaged in the local trade and service sector. The project concluded with detailed recommendations for future SME-lending business development, with specific emphasis on operational risk management, credit decision-making and quality control, marketing and market positioning.