HNB SME Banking: Much more than just transactions

The Small Medium Enterprise (SME) sector plays a strategic role as a key driver of change in Sri Lanka for inclusive economic growth, regional and national development, employment generation and poverty alleviation.  

This crucial segment forms a considerable part of the country’s economy, accounting for 80% of all businesses. In the manufacturing and service sectors, SMEs account for about 20% and 90% of business establishments, respectively. The SME sector, as a whole, is envisaged to contribute towards transforming lagging regions into emerging regions of prosperity.

HNB has a rich heritage as the partner that has helped countless millions of Sri Lankans progress and live better and enriched lives. “Being a true ‘Partner in Progress’ begins with understanding the needs of our customers. It goes way beyond providing financial assistance. We work very closely with our customers to understand their business, provide guidance and ultimately help them build profitable and sustainable businesses. We have to always stay committed to our customers and their needs. This is how we take a mere transaction and build an entirely new relationships through it,” says Hatton National Bank PLC (HNB) Assistant General Manager – SME Jude Fernando.

In this interview, Jude Fernando discusses a gamut of issues encompassing this ‘lifeline’ that helps grassroot level, small-time entrepreneurs to achieve sustained growth in the long term and emerging market developments and the bank’s singular contribution towards the growth of the sector.

 This is the crux of our new corporate communications campaign ‘Banking Beyond Transactions’ which epitomises our philosophy of building relationships. It brings forth, how over the years, we as a bank have created innovative banking solutions through our unique understanding of this country and its peoples, he emphasised.

At HNB, in addition to its strong personal banking franchise, there are three main verticals that propagate the commercial business segment, i.e., the Microfinance, SME and Corporate Banking segments. Micro Finance clients gradually progress to SMEs and thereafter to mid and large corporates, where the opportunities are immense, depending on their success and long-term sustainability, he explained.

“We identify people at grassroot level. What is unique at HNB is that we don’t concentrate solely on financing established, ongoing businesses. We reach out to those down the line at the lowest level and give them the financial support and the required guidance to grow their enterprises and new ventures,” he stressed.

“This is where our team of highly experienced Gami Pubudu Upadeshaka’s (GPUs) and the regional SME cells play a significant role. These teams backed by our industry specific experts based in our Head Office and Regional Offices offer a unique and one of a kind service to our Micro and SME clients. As far as I am aware, we are the only bank that has industry specialists be it in tea, paddy, rubber, spices, the leisure industry or manufacturing to help nurture and grow our client businesses,” he further added. 

Following are excerpts from the interview:

Q:  What is the maximum finance under SME and what businesses come under the SME category?

A: Under SME, we can go up to a maximum bank finance of Rs. 200 million to any business enterprise coming under the Agriculture, Industry and Services categories of the economy. Those who are in need of financing above this requirement are serviced through our Mid Market segment or Corporate Banking.

Tea, rubber and coconut comes under the ‘Plantations’ category and businesses linked to these agro-based industries are also included, such as, tea factories, rubber, coconut and food and fruit processing plants. The fisheries industry is also a key area in the SME sector.

Further, industries manufacturing products for export as well as for import substitution and other manufacturing plants providing value additions to imported goods such as weaving and textile mills, spare parts producers form an integral part of the SME sector.

Services refer to any type of service industry such as Information Technology (IT), automobile services, garages, filling stations and professional bodies such as accountancy firms, service-oriented businesses such as hotels and restaurants. In addition, trading clients who do any form of import and export and local buying and selling are also included.  

Q: How do SMEs reflect on employment generation?

A: They account for more than 45% in terms of employment generation in the country, both direct and indirect. SMEs with value additions play a critical role. That is why the Government has selected SMEs as one of the key sectors in its employment generation strategy.

Q: What is the progress HNB has made in this sector?

A: Our exposure in this segment is nearing Rs. 200 billion and in 2015, the growth rate was 25%. We are a leading player in the SME space in terms of value and number of clients. We continue to focus on and grow this business and our expectation is to achieve 30%-35% growth this year.

Q: What are your strengths and unique selling propositions to augment this segment?

A: Firstly it is our comprehensive product offering backed by the convenience we offer through our state of the art technology platforms. All our clients have access to E Banking and Mobile Banking solutions to carry out their banking from the convenience of their home or work place 24x7x365. Additionally they also have access to the very latest in payments and cash management solutions and distributor and supplier financing solutions at their fingertips. 

 HNB also has the branch footprint amongst private banks to service the SME sector. Our 150-strong GPU field force working with our 250 branch managers and SME cell officers complete our offering which is beyond comparison to anything that is available today in the market. 

Our future aim is to make HNB the SME Banker to the nation in the not too distant future.

Q: What is the scenario in the North and East post-war?

A: Post war, most banks opened branches in the North, even in areas with a relatively small population. The immediate priority following the war was not to grant credit, but for people to settle down and to look after their basic needs. 

Today, there is a conducive environment in the North and East to do good business, especially more women have come together to embark on viable projects to improve livelihoods, thereby triggering enhanced economic activity. 

People are now in a proper frame of mind to attend to their day-to work. They have formed societies among themselves and are engaged in various types of small businesses where there is great potential for improvement. 

HNB has identified the skills of these innovative people and is paying special attention to harness their skills and tap the potential to uplift livelihoods through self-development.

We cannot do our conventional banking as usual in the North and East in the absence of collateral. There has to be flexibility and need-based banking, which we have understood and are practicing now. Both our SME cells and field staff together with 46 branches in the North and East play a big role in supporting the aspirations of the people in these regions.

Q: HNB continues to have a strong presence in the North and East?

A: Many of our competitors moved to the North and East after the war, whereas HNB as a systemically important bank has been operating in these two provinces decades before. We were active in Jaffna, Vavuniya, Mannar and also in the East right throughout, and after the war ended, we further expanded our presence. As a result, we have built a strong customer base and the HNB SME model is fully implemented in ‘these areas’.

Q: Can you outline HNB’s role in the SME sector?

A: As a Sri Lankan bank, we go way beyond the provision of mere financial services. As explained above, our main focus is to partner small and medium enterprises and nurture and help them grow profitable and sustainable businesses that ultimately benefit not just the owners and employees but the country as a whole raising employment levels and growing our GDP. We work not just with the experienced, but foster the startup of entirely new businesses and industries from their inception. 

Most SMEs are not direct exporters, but they are suppliers of inputs to large exporters. As per information available, there are more than 5,000 exporters in Sri Lanka, but out of them around 25% are active. We must develop SMEs and assist them to become direct exporters. They need financial assistance, capacity and network building and technology improvement to take their businesses to the next level and access global markets.

We launched an island-wide program to train SMEs to develop their entrepreneurial skills, financial management and marketing which, in turn, helps to improve their businesses. As most SMEs are proprietorships, they lack financial discipline which affects the decisions taken on running their businesses. We are also working closely with other corporates, FCCISL, EDB, Regional Chambers of Commerce and GIZ to help SMEs in other aspects such as finding new markets for their products. 

One of the projects we are jointly working with GIZ and SLEMA is to improve awareness and knowledge in energy efficiency and renewable energy for SMEs in order to minimise the cost of production and build sustainable businesses. In addition, we work closely with our funding partners, such as DEG and Praparco who have generously contributed their funds to augment HNB’s SME business.

We will also be initiating a scheme to fund exporters based on their confirmed orders very soon. We finance distributors of renowned brands to enable them access low cost funding on minimum collateral. This is done with the involvement and strength of the principal companies of these distributors.

Q: What about technology?

A: We understand that our clients operate in an ever changing, highly competitive global market place. Being fast and nimble is the order of the day. This is why technology and digitisation is at the core of our offering. We have recently invested significantly in this area to bring convenience and state of the art banking solutions that would drive productivity gains and the competitiveness of our clients in the respective industries they operate in. 

From the automation of payments including salary and supplier payments, to collection management and distributor and supplier financing solutions are all only a click away. Our newly upgraded internet and mobile banking solutions ensure the ultimate convenience where all your banking, fund transfers, bill payments etc can be made 24x7x365 from the convenience of the customer’s home or office. 

 These innovations that are on par or better than what is available in overseas markets help our clients compete not only locally but even across international markets.

Q:  Is there focus on start-up businesses?

A: We pay special attention to start-ups especially focusing on youth who have acquired training but have no capital to invest in business. Also our strategy is to assist the country to develop priority sectors such as exports, dairy development, aqua culture and tourism.

HNB has remained very strong in refinancing schemes over the past three decades. The bank participates in different refinance credit lines where funds are disbursed in collaboration with the Government of Sri Lanka, Central Bank and foreign donor agencies which is a great means for start-ups/entrepreneurs to access low interest funding. 

Our overarching objective is to make HNB, The SME Bank of the Nation and to foster and partner the progress of our SMEs in their drive to fully realise their potential.