Financial services organisations generally have a good track record on information sharing. For example, the advent of increased customer applications for credit have heightened the industry’s interest in information sharing. Furthermore, collaborative events to tackle financial crime have increased the speed in which information sharing can take place. However, these incidences typically relate to data sharing on individuals, a similar flow of information between institutions on potential SME customers is not nearly as developed.

Since the beginning of the recent economic recession, SMEs have largely been pigeon-holed as a poor source of income for banks at best and a potential risk to their balance sheets at worst. A lack of information sharing between banks on the credit worthiness of individual SMEs has served to perpetuate a reluctance to lend to this market sector.

It is both a commercial aspiration and an imminent compliance issue for banks that they know their individual customers as well as possible (a Single Customer View). However, no such commercial encouragement or regulatory coercion exists in relation to SMEs and the result is that many incumbent banks are unable to determine the actual credit worthiness of individual companies. The result is a short fall of credit to SMEs in the UK with a knock-on effect on the economy.

More comprehensive collation and sharing of information on the credit worthiness of SMEs that are seeking lending facilities would enable more informed decisions to be made and those banks that are willing to lend to SMEs, to do so within their own credit risk parameters. Technology will play a key role in facilitating the collection of this information, its accuracy and the development of improved flows between institutions. Additionally this represents an opportunity for new and smaller entrants to the banking sector to specialise in lending to SMEs, if they can build up their information base to gain a comprehensive picture of their potential SME customers. As distinction between SMEs that are credit worthy and those that are not is more readily achieved this could, in theory, lead to a reduction in the cost of borrowing for SMEs – currently one of the preeminent reasons behind suppressed demand.

However, despite technology’s role in facilitating more informed decisions about which SMEs are worthy of credit and which are not, this is ultimately still a decision for individual banks (with their own individual attitudes towards risk) and remains an issue of diverged opinion between the banking industry, the business community and government. Compelling banks to lend more to SMEs (regardless of whether or not demand for such credit is visible amongst SMEs) is only an option for state owned banks and does nothing to remove the risk with which these banks lend to SMEs. If the rest of the banking industry is to make a commercial decision to lend to appropriate SMEs, this decision needs to be informed and represent a prospective opportunity for banks, rather than a liability.

The Government, in publishing its review of finance options for the private sector, is keenly aware that as demand for finance amongst SMEs rises, the banks in their current state are unwilling to meet this demand. However what the Government needs to address, as well as examining alternative sources of capital, is how lending to SMEs can be encouraged, either by loosening FSA restrictions on at-the-branch decision making and how it can be made more commercially attractive for banks. The availability and use of accurate and comprehensive information on which SMEs are viable recipients of credit is critical to achieving this.

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