Coalition: A Proposal for Financing SMEs
This paper presents a new approach for financing small and medium enterprises (SMEs). As SMEs do not fit into the risk analysis systems used by financial institutions, the paper proposes a coalition of various institutions such as banks, governments, guarantors and guarantees, and integrating this with modern technology, such as the internet.
The paper envisages a model wherein institutions transmit their trust to the other participants, so that the last member of the transaction chain, banks, can issue a credit to the first one, guarantee, relying on its existing trust on the middle link, guarantor. The author identifies steps that need to be taken in order to revive this model:
- Utilizing technology, especially the internet, for transacting and negotiating, thus reducing operational costs;
- Designing online programs to enable decision making by the guarantee;
- Creating an interactive functionality in order to let the users contact bank executives directly;
- Developing regulatory framework for business transactions through the internet.
Although applicable to a limited number of SMEs, the paper concludes that technology can play an important role in improving the efficiency of all the players involved in the financial market.
