Developmental Impact

The 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.