How can banks respond to the shift to a small business economy?

Banks and providers of other financial services world-wide are increasingly aware that their future profitability and prosperity lies with the premium small business sector.  In Europe and the USA for example, a substantial proportion of the total profits generated by the major banks derives from their small business customer base.

As the commercial environment changes in response to global pressures, and large corporations re-structure to be competitive in international markets, it is anticipated that premium small businesses will increasingly generate the bulk of economic activity and employment in both developed countries like United Kingdom and the new emerging and developing economies.

The SME sector is the engine of economic development

In many developing countries, local economic distortions often permit financial institutions to generate quick and reliable income from treasury bills and bonds, reflecting factors such as high inflation and the willingness of governments to borrow.  However, this is not sustainable and an economy has no choice but to invest in productive enterprise which will come mainly from the SME sector.  Indeed, a growing and increasingly professional small and medium enterprise (SME) sector is  the engine of economic development in most  economies.  In addition to this the increased participation of women in the SME workplace has demonstrated to be extremely beneficial to the GDP of economies.

Response by the banking sector

If the banking sector is to stimulate the small business economy, 4 key areas need to be addressed:

  1. Improved awareness amongst financial institutions of the importance of the SME sector to the development of the economy, leading to the increased propensity of the financial services sector to turn its attention to it;
  2. Deeper understanding of entrepreneurship and the process of development within the independent business to aid recognition of the need for finance, as well as recognising the support required to ensure it adds to the sustainability of an enterprise;
  3. Enhanced competence and ability of bankers to work effectively with small businesses; and
  4. Improved insight into the way banks can differentiate themselves from their competitors in an important and increasingly crowded marketplace.

 

Over the past 18 years Dinah Bennett and ICE Associates have worked extensively with the banking sector, providing Relationship Management training to over 4,000 bank managers and staff.

Read ICE case study Relationship Banking:  Understanding the Entrepreneurial Lifeworld