Tech companies tapping SMEs via tie-ups with FIs

Technology companies are tapping business opportunities in small and medium enterprise (SMEs) through financial institutions.

US-based technology major, Intel has forged an alliance with ICICI Bank and the Small Industries Development Bank of India (Sidbi).

HCL Technologies and Wipro have also approached Sidbi for entering into a tie-up. IBM had earlier inked informal risk-sharing arrangements with major private sector banks such as ICICI Bank, Kotak Mahindra Bank and UTI Bank.

Speaking about the nature of such alliances, ICICI Bank's general manager Vijay Chandok said "such alliances would be a precursor for several future arrangements that players from non-competing spaces would be entering into, to address untapped market segments."

Through these tie-ups, banks and information technology firms make efforts for penetration of lower-end technological solutions among SMEs.

These include evolution storage and delivery patterns, developing websites for SMEs to help them have access to markets, use for activities like production, e-commerce and inventory management.

Banks typically conduct the required due diligence on SME borrowers, undertake risk management and provide finance for the hardware and software, supplied by the technological companies.

ICICI Bank, which recently forged an MoU with Intel has introduced a financing option, that includes hardware (computers, notebooks, servers, printers etc), software and connectivity options.

The ticket size of the loans is anywhere upwards of Rs 50,000 and covers up to 70 per cent of the invoice amount. Chandok said going forward, ICICI Bank may even look at launching co-branded or private label initiatives with Intel.

Sidbi and Intel are also planning to market technological tools produced through the synergy via a co-branded venture. As part of the alliance, Intel would act as a channel partner, conducting seminars to educate SMEs on the need to deploy technology in their operations, Sidbi's general manager U R Tata said.

Even original equipment manufacturers (OEMs) are currently in talks with Sidbi for providing assistance to vendors and marketing outfits.

IBM's country manager, global finance, Srinivasan Chakravarthy, said, "Banks tend to focus only on the financing aspect with regard to SMEs. However, asset-based financing of IT-related assets involves high risk management and faster rate of depreciation."

Typically, in structured transactions where the loan amount is very large and a single entity cannot manage the total quantum of risks involved, the risk is split in a 50:50 ratio between two banks, Chakravarty said.

Alliances with lenders helps IT companies as funding of technology deployment in SMEs is taken care of as the SME sector has been extremely averse to and apprehensive about additional investments in technology.