Alternative ways of SME financing and credit risk appropriate approach CHANGING WORLD Alternative ways of SME financing and credit risk appropriate approach Presentation of EUROBANKING 2016 in Barcelona ©2016 • Pavel Finger• May 2016

Content: Ways of SME financing World of information SME credit risk management How to manage it?

WHY ARE SME IMPORTANT FOR BANKS? Pure retail banking is really fighting area for banks and they probably not just win, as they are backward in that! World Retail Banking Report 2016 Efma and Capgemini 3

WORLD of SMEs – BIG BUSINESS SPACE SMEs are important driving force for world economy, but not only banks will profit on it. 4

WAYS OF SMEs FINANCING Loans from banks and financing via business (trade receivables) Financing via banking loans, not as one company loan, but as a credit for the group companies bounded by mutual guarantees. Typical representative of this approach is European Association of Mutual Guarantee Societies (AECM). For example there are so called “Confidi” doing this business in Italy.   Venture capital providing sources namely to fast growing innovative projects. There are many various Venture funds or private investors across Europe, but it is rather expensive source of money, not fits for common business needs. P2P (peer to peer) financing, typically provided through auctions of financial demands. Funds can be delivered by banks or others investors, often both in combinations. We can see the first trials in the Czech Republic, but still with many problems. 5

WAYS OF SMEs FINANCING Crowdfunding project finance, typically collect money from many private investors in case of very interesting projects through FinTech infrastructure. Investor can replace a yield for another benefit as for example promotion of his/her name. Typically it is about non-profit project like musical concert or movie picture. SME financing via capital market that seems to be a method very supported by European commission. In case of SME there should be easier processes than in case of big corporations. Main ways are IPOs or issue of bonds. Despite of EC support, there are still a lot of problems for SMEs to go this way. A certain possibility seems to be bundling of more loans in one package and replace it by the securities. 6

WAYS OF SMEs FINANCING Financial institutions have a last call to serve SME segment, but trend is not good 7

WORLD of INFORMATION Information eruption and new technologies in IT New ways of financing and new providers (FinTech) Industry 4.0 Payment Services Directive (PSD 2) Standardising, integrating and improving payment efficiency in the European Union Offering better consumer protection Promoting innovation in the payments space and reducing costs Incorporating and providing clarity on the use of emerging payment methods such as mobile payments and online payments Create a equal playing field for payment service providers  - enabling new companies to get into the payments space (Application Programming Interface - API) Harmonize pricing and improve security of payment processing across the European Union Incorporate new and emerging payment services into the regulation 8

WORLD of INFORMATION 9

WORLD of INFORMATION 10

SMEs CREDIT RISK MANAGEMENT Different approach comparing with corporates Fast, simple and transparent way of risk analyses Data comes from business information systems Data from industry and regional data are important Not only ratings, also people behind are the key risk drivers 11

HOW TO MANAGE IT? – BI SYSTEM Majority information on SME are in the business info systems People behind the business can be analyzed there as well Company profile is still the key knowledge of the banks Industry analyses as well But time is running – is date for changed approach 12

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HOW TO MANAGE IT? - BI SYSTEM All necessary inputs for analyses are „single sign-on“ There are tools for evaluation start up companies as well as Entrepreneurs BI system contains various type of scoring models (payment index, financial index, key person evaluation etc.) BI system is useful for marketing, credit risk and collection life cycle parts. But don’t worry, there is still enough space for statisticians ... 14

Thank you for your attention CHANGING WORLD Thank you for your attention Pavel Finger, CRIF – Czech Credit Bureau (p.finger@crif.com)