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Impact investing and the application of technology to UK SME lending
Small and medium-sized enterprises (SMEs) are a vital component of the UK economy. The provision of credit to the SME-market, however, is in need of a revolution.
Small and medium-sized enterprises (SME's) are a vital component of the UK economy. They represent over 60% of private-sector employees and are recognised as a critical component of both innovation and economic growth.
The essential problem for potential lenders to SMEs is that the universe of UK SMEs is enormous – involving some 5.7 million companies – and yet the credit approval process is the same for a GBP 500 000 loan as for a GBP 50 million loan.
Provision of credit is economically difficult
As a consequence, to construct a diversified portfolio of loans at the smaller end of the SME market requires resources that make the provision of credit to these entities economically difficult.
For that reason, most direct lending in the UK focuses on the larger end of the SME spectrum – medium-sized enterprises from which banks can generate the revenues that mean they can operate efficiently, and via which asset managers can construct portfolios of relatively few loans, allowing for faster draw-down of capital commitments.
Revolution with respect to the provision of credit
To operate efficiently at the smaller end of the market, the investment process needs to be standardised and automated.
A recent paper by BNP Paribas Asset Management (BNPP AM) examines the role of technology in promoting a revolution with respect to the provision of credit to the UK SME market and provides a practical example of how technology can be applied to a multi-faceted investment process designed to standardise, digitise and thus automate direct lending to small and medium enterprises.
Find out more about how technology can be applied to a multi-faceted investment process designed to standardise, digitise and automate direct lending to small and medium-sized businesses. Read the latest BNPP AM Blog here.