Distribution- Do we need a Relationship Manager? (SME Lending Models 5)

Some crossroads our clients encounter while setting up distribution/origination models:

Do we set up a new SME vertical or leverage Branch resources? Is third party agents a good idea? To what depth in the market should we penetrate? Should we segregate the Sales and Relationship functions?

The answers lie hidden deep within the organisation’s current state and long-term view. Below are some of the basic considerations while building a SME distribution model

  1. Ticket Size: For low ticket size, speed and lower operational/acquisition costs are crucial (for eg. Sales Manager + Centralised Backend servicing). Digital distribution may help too. However, for large tickets, a deeper engagement (Relationship Manager) is necessary to understand complex customer needs and also provide credit-risk mitigation (touch-feel).
  2. Role separation: Separating Sales and Portfolio management roles (popularly called Hunter-Farmer model) improves speed but at higher manpower cost. This can be optimised only if potential and origination volume is high enough. It may not be the best starting point if you are building grounds up or pivoting.
  3. Risk-reward framework: For high risk segments (for eg low credit score), significant focus (and resourcing) is required for post-disbursement processes (eg. monitoring and collections). But for moderate/low risk targeting, competitive forces necessitate a higher skilled resource and relationship ownership from initial sourcing to post-disbursement collections (say 30 DPD)
  4. Leveraging channels: This strategy looks best in financial projections due to low marginal cost of manpower. However, in many cases, cultural baggage impedes (and kills) the speed of acquisition. Utilising existing channel is helpful if the skills and KRAs are synergistic and in our experience mostly need significant upskilling effort.
  5. Type of facility/Products: Its intuitive to assume that Running a/c facilities (like Cash credit) require more frequent engagement compared to tenure loans. However, this varies globally. Many geographies systemically discourage averaging based assessments and prefer either short term cash flow based or tenured facilities, even for working capital.

In short, approach needs to be nuanced based on overall business model, detailed cost—benefit evaluation and socio-economic environment. Importantly, Asset is a marathon. Sprinting brings sprains and aches, rather quickly. So, no shortcuts!

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