SMELoan

completed

SMELoan is a company specialized in providing working capital loans to small and medium enterprises (SMEs) utilizing an innovative credit scoring method and an internet enabled technology platform. Currently, the company is focused on the Hong Kong market of which many of its clients have their manufacturing bases in Southern China. In the aggregate these businesses employ about 19,000 people and are typically five to seven year old, family owned and managed businesses, involved in light manufacturing or distribution businesses. The company would use IFC''s investment to complete its technology development, securitize its portfolio and expand its operations into the emerging markets.IFC''s RoleProvision of risk capital. IFC will be providing financing to a new enterprise which is using new technology for expansion into riskier markets. It would be difficult to find traditional sources of financing for that type of a venture.IFC will facilitate implementation of the company''s expansion plans. IFC has significant amount of knowledge on the small and medium enterprise (SME) sectors in China, Philippines, Thailand, India and Korea accumulated through studies, project development facilities and partnerships with local financial institutions. Using this knowledge, IFC will help identify prospects for the international deployment of SMELoan''s technology. Developmental ImpactThe developmental significance of this project is related to its potential impact of the technology for SME lending. High transaction costs, high risks and collateral requirements have been the main factors constraining SMEs access to bank lending. The project develops and employs a new business model that not only lowers customer acquisition costs, but also dramatically improves core credit and customer management processes by relying on internet technologies for standardization and real-time access to information on the performance of the borrower. The model relaxes the collateral constraint to SME lending by making it easier to base credit decisions on the use of account receivables as collateral as opposed to real estate for instance. The technology has the potential of increasing competition in the credit market, by providing new entrants with the ability to manage a large number of borrowers while closely managing the credit risk of each individual account. The efficiency and scalability of online lending will not only allow the company to compete against more traditional banks, but it would also allow it to target the kind of small businesses that banks are wary of lending to because of the high costs of servicing the loan. This is expected to have a strong demonstration effect and create pressure on banks to adopt new practices in their SME lending. Increased competition among financial institutions would benefit SMEs.