Anatolian Banking Keys to Success in Serving Craftsmen, Micro, and Small Enterprises
Many banks around the world have been successful by focusing their serves around micro, small and medium enterprise (MSME) banking. However, there is a tendency for such banks to focus on the higher end of the MSME market, avoiding the risks and administrative costs that come with serving smaller businesses.
Many banks around the world have been successful by focusing their services around micro, small and medium enterprise (MSME) banking. However, there is a tendency for such banks to focus on the higher end of the MSME market, avoiding the risks and administrative costs that come with serving smaller businesses. Şekerbank in Turkey is an interesting case because it has targeted the lower end of the spectrum in its MSME banking line of business.
Şekerbank classifies such businesses as craftsmen and “micro” businesses — referring to a business size in between the craftsmen and small business. The bank has been successful in reaching these sectors by tailoring its policies and credit procedures to these markets, as well as by developing products that address the needs of these very small enterprises. Şekerbank provides an exciting example of a fullservice commercial bank that has chosen to specialize in serving smaller businesses in Turkey, specifically micro enterprises and craftsmen. These are collectively referred to as very small enterprises, or VSEs, in this publication. This case study is not an assessment of the full operations of Şekerbank. Rather, it is intended to identify the key choices that Şekerbank has made to serve these clients and keep the focus of the bank’s operations on them— instead of defaulting to the easier option of serving larger clients.
Vision and Mission
Şekerbank was established in 1953 as a financial institution by and for sugar beet farmers and agricultural cooperatives. Even today a third of the bank’s equity is owned by its staff pension fund, reflecting this historical community banking orientation.
The keys to success in this path to growth reflect both inherent characteristics of the bank and deliberate choices about business models and products. These reflect Şekerbank’s commitment in targeting the lower end of this market, and developing itself as a community bank with an MSME focus.
Şekerbank’s determination to specialize in serving Very Small Enterprises (VSEs), resulted in choices, or differentiators, including:
- Segmentation – Services are divided into four size-based segment levels, including “micro” and craftsmen, which are separately tracked;
- Staffing – Incentives are tied to product numbers more than volume of lending; • Credit Approvals and Monitoring – Separate scorecards are maintained for each segment, as are scorecards for monitoring and problem loan management;
- Product Design – Multiple products have been developed for craftsmen and other segments; and
- Delivery Channels – Non-traditional delivery channels include cash machines and card-based access. In addition, Şekerbank also offers on-line Internet Banking options.
Şekerbank’s key strategies reflect a dedication to serving small and medium enterprises (SMEs). These are described in this report, along with insights for financial institutions trying to reach the VSE customers at the lower end of the spectrum.
Şekerbank seriously considered the question of how best to meet VSE market needs. In this context, it launched surveys and focus group meetings and identified the following VSE needs and priorities:
- Physical proximity of the branch is essential;
- Single point of contact at the branch is preferred
- Customers need financial consultancy;
- Simple borrowing procedure is important;
- Customers are less price-sensitive;
- Last minute transactions are typical; and
- Customers respond to a sincere attitude.
The VSE needs and priorities, along with the bank’s own vision and outreach approach, shaped its strategy for reaching the VSE market: Components of Şekerbank’s strategy include the following:
- Develop innovative but simple products to increase market share and profitability;
- Adopt relationship-based banking instead of transaction-based banking to become business partners for the long-term
- Address niche segments to reach under-banked people;
- Introduce the unbanked population to formal banking;
- Bundle products in order to increase cross-selling, and present advantageous prices without sacrificing profitability;
- Adapt and revise products and services according to local needs;
- Build strategic relationships with leading brands to offer added value;
- Use alternative delivery channels effectively;
- Develop industry-/sector-based packages to meet specific needs in terms of relevance, and timeliness; and
- Become a leading bank in financing sustainable development while increasing its market share.
Thus, Şekerbank has been actively engaged in reaching this underserved business segment. Indeed, it has been innovative in developing products and services that respond to this market segment’s unique needs.
The Banking Sector in Turkey
Turkey has a vibrant entrepreneurial sector, and according to the Turkish Statistical Institute, over 97 percent of its approximately 2.4 million businesses have twenty or fewer employees. Together, they comprise 46.5 percent of total employment in Turkey. These very small businesses are responsible for 29 percent of the value added to the economy.
There are over forty commercial banks in Turkey with a robust mixture of state-owned, private, and foreign owned banks, as well as leasing companies. Very small businesses will often keep deposit accounts with the state-owned bank that has the largest branch network nationwide. As of 1999, several of the private and foreign banks established SME departments. Their SME bank offerings, particularly for women-owned enterprises and non-financial services, have been documented as best practice models.
As noted, Şekerbank was originally established as a bank to serve cooperatives. Later it shifted to full-service banking, concentrating on commercial customers. With support from the International Finance Corporation (IFC), the German Development Bank (KfW) and other technical advisors such as the Internationale Projekt Consult (IPC), Şekerbank began by serving microenterprises. In 2009, it established an SME department, separate from commercial banking. This occurred relatively late compared to other banksinTurkey that are focused on serving SMEs.Although the title isthe same, Şekerbank’s SME department differs from the other.