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Analysing critical success factors in small and medium enterprises banking

Analysing critical success factors in small and medium enterprises banking

SME banking is not a novel phenomenon. All large public and private sector banks in India are indulged in serving small and medium enterprises (SMEs) in their own innovative way.

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They might have special cells or business units for funding and handholding the SMEs to grow like Citibank, Standard Chartered and HSBC or they might use credit card receivables as collateral like HSBC, they might selectively structuring back to back Letters of Credit like ICICI Bank or they might go for tie up like between Yes Bank and Netherlands’ Wageningen University Research Centre to introduce Wageningen’s Agrofood Park model.

The time has been passed when banks were averse to lend to SMEs as they did not consider them as attractive and profitable undertakings, they perceived SME market as risky, costly and difficult to serve (Hossain, 1998; Bhattacharya et al., 2000; Sia, 2003; Wittmann, 2006; IFC, 2010; Ghatak, 2010). Recent studies indicate that most commercial banks perceive the SME sector as profitable and therefore, bankable (IBEF, 2005; Beck et al., 2008).

According to IFC (2010) report, SMEs represent important potential clients for banks and the unmet SME demand for financial services represent a golden opportunity for banks to expand their market share and increase profits. The reason behind this drastic change in attitude of bankers include rising contribution of SME in GDP, the size and scale of SME, SME to be a part of  global supply chain.

Like large companies, small firms also access customers, suppliers and collaborators around the world (Wright and Dana, 2003). They have larger and more flexible inventive capacity for their size than large enterprises (Dana et al., 1999). Another reason for the growing attention is a realisation that those SMEs that survived the global downturn in the late nineties could soon be giants in the making, with improved efficiencies (IBEF, 2005).

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