Ask a bank whether it does SME banking or has SME products and the answer is almost always yes. However, ask a small business owner whether that is indeed true and the reply may be different.
This disconnect was revealed in the recent edition of The High Street Talks, organised by The High Street Journal. Maame Yaa Owusu-Amoah, a technical specialist in Digital Finance, argued that financial institutions need to develop products that speak the language of the small business.
What is the “language of the SME”?
According to Maame Yaa Owusu-Amoah, it is the set of constraints SMEs face when trying to access finance. A truly SME-friendly product, she explained, understands how these businesses work. It takes into consideration the uncertainties, the risks and, above all, the timelines.
Her example came from the farm. An agribusiness owner needs money to buy fertiliser at a specific window. If the funds arrive a week late, she said, the money is no longer relevant, because it will not have the needed impact on the maize.
In fact, she noted, financing is needed at every stage of the farming cycle. From preparing the soil, when equipment and labour must be paid for, sowing, applying fertilizer, and even during harvest time.
Design from the ground up
Her approach, which she said her team has used with partners, is human-centred design. Rather than building a product from behind a desk, designers get involved in the day-to-day running of the business. They ask what is being grown, what the timelines are and when money must be deployed.
She said this is how the Solace Merchant Platform came about. Picture an entrepreneur who processes shea butter and sells through an online platform, WhatsApp, family and friends, and a shop. This is a lot moving at once.
What such a business needs, she said, is a financial partner who can pull it all together into a true picture of the business, then help with asset financing for equipment or with hands-on support.
Banks “relaxed and pampered”?
She was direct about the wider banking system. In her view, many banks have been relaxed and pampered, preferring the easy business of lending to individuals and companies that are already doing well. The hard work of going to the field to understand SMEs, she said, is something there is not much of in the system.
Some may argue that handholding is not a bank’s job. But Maame Yaa Owusu-Amoah offered a counterpoint. He argued that if a bank walked with Dangote when he started out and is still his banker today, she said, imagine how much it is earning from that relationship.
She therefore maintained that the financial institutions in the country should not despite humble and small beginnings.
Collateral without the property papers
She envisions SMEs products that may not need traditional collateral at all. The collateral, she said, can be the stock a business holds, its cash flow, or the orders coming in.
Such products could even come with built-in insurance. A trader in Kantamanto, for instance, faces the real possibility of fire or flood, and a product designed for that trader would account for it. Without products like these, she said, banking is not really banking for small businesses.
Buzzword banking
Today, she observed, “SME” is a buzzword. Many banks say they do SME banking, yet when you sit down with them, she said, the collateral demanded is unrealistic, the interest rates are steep and the repayment timelines are short. By her account, banks that truly understand SMEs are few.
Flip the script
The digital finance specialist therefore advice startups and young businesses not to simply walk into a bank asking for a loan, even if you meet every requirement. Make sure the institution understands your business.
Business owners, she said, should not let the banker do all the questioning. Ask questions too. If the product does not fit, it is fine to say so, explain how your business works, and speak to someone else.
For Ghana’s lenders, the question she leaves on the table is whether their products are built around how SMEs actually operate.
