Knowledge Based Lending for Small and Medium Sized Enterprises

According to a recent study by the IFC, the potential financing gap for financing of formalized Micro, Small and Medium Sized Enterprises (MSME) in developing countries is valued at USD 5.2 trillion. Informal companies in these countries add another USD 2.9 trillion to the gap. About 65 million MSMEs in 128 countries are credit constrained [*]. Financial Institutions need to overcome many constraints to be able to serve this market better. If they can figure out a path to successful MSME lending, the demand will be unlimited.

This is the introductory article of a series of blog posts which we publish over the next weeks to introduce Q-Lana, a comprehensive, fully customizable and intuitive platform to manage the entire lending life cycle for financial services to Small and Medium Sized enterprises (SMEs). Q-Lana has been built based on the concepts of Knowledge-Based-Lending. We present the tools and instruments that make Q-Lana unique and will help financial institutions to improve their lending business with SME clients. We have developed Q-Lana with a focus on emerging economies, but it is equally useful in developed countries. Q-Lana integrates well with existing core banking software. To learn more about Q-Lana, please contact us at

Providing financial services to SMEs is among the most interesting and most challenging business areas for traditional financial institutions. Financial services for SME clients require specific understanding of the way those companies conduct business, the entrepreneur’s personality, strengths and weaknesses.

Financial services for SME clients is for the largest part relationship banking. It can take several years to build an understanding of the client and the business potential. A good SME relationship manager in a financial institution has gained the trust of the entrepreneur and of the management of the company. He fully understands the business of the client and the personality of the people involved.

Successful financial institutions in the SME space build up this understanding and knowledge through a strong focus on the interaction with the client. SMEs value both, solid and modern financial services as well as a trustful relationship with their financial institution. SME entrepreneurs prefer to rely on a financial institution as a long-term business partner, based on trust and understanding.

Knowledge is the Competitive Advantage

The knowledge about the SME business in the target markets is the most important competitive advantage of SME focused financial institutions. This knowledge is mainly collected through the work of relationship managers who know the clients for many years, if not decades. Institutions struggle to make best use of this knowledge, sharing it across the team or drawing conclusions from primarily subjective impressions. When a relationship manager leaves the financial institution, all the experience and knowledge is usually gone as well. The challenge is to capitalize on this vast amount of information, which is largely of qualitative nature. Statistical tools and technology found their way into standardized lending through advanced forms of scoring and data analysis. For the rather bespoke SME lending activities, the use of those tools remains a challenge.

Q-Lana defines Knowledge Based Lending

Providing ways to capitalize on the knowledge collected from working with clients is the driving factor for the development of Q-Lana. Q-Lana is a comprehensive, fully customizable and intuitive digitization platform for SME business. It is placed at the core of the lending process. It provides support for front end activities as well as supporting areas such as operations and risk management. Q-Lana collects information from every interaction with a client. This includes the first contact, loan application, approval, monitoring, and collection. It also covers the management of collateral, documents, impact measurement and has a CRM component. Q-Lana collects information through a variety of methods, including speech recognition. Q-Lana assesses the value of qualitative and quantitative information and feeds analytics back to the users in a context sensitive manner. The use of the Q-Lana platform is intuitive. It allows the institution to fully replicate the existing processes and procedures as provides the opportunities for upgrades of the lending methodologies, where new instruments are suggested. Q-Lana is a web or server-based application provided as Software as a Service (SaaS), priced based on transaction volume.

Q-Lana has initially been developed with a focus on emerging economies due to importance of the domestic SME sector for the overall economic growth. However, it is equally useful in developed countries, supporting existing core banking software.

Components of Knowledge Based Lending

We have integrated several innovative concepts in Q-Lana to support the various stages of the lending processes with clients. Those concepts will enable the financial institution to service clients better while minimizing risk exposures. At the same time, close monitoring of the efficiency of the lending process is possible.

In a series of blog posts we will introduce the key components of knowledge-based lending. These instruments are integrated into Q-Lana and can be deployed in a financial institution in parts or as a whole. They can complement the existing lending process or replace and upgrade parts of it. We will explain how Q-Lana adapts the components in the digitized platform, allowing the institution to jump to state-of-the-art lending process. The components we cover here are:

Throughout the blog posts we will demonstrate how Q-Lana is implemented at and how it can dramatically improve lending to SME clients. We will also introduce our SME fund project which we are launching in collaboration with a reputable asset manager in the impact space. This fund will provide new ways of funding and risk sharing for SME loans.

We have structured the blog posts so that they are interesting and useful even without the adaption of Q-Lana. We hope to contribute with our knowledge and experience to the further development of the SME lending business. We also look forward to critical feed-back and an open discussion on how to improve access to funding for SMEs.

About the author:

Christian Ruehmer is the Co-Founder and CEO of Q-Lana. Christian has over 25 years of experience in finance working for several large international banks in the areas or Risk Management, Credit Portfolio Management, and Investment Management. Christian has been an advisor in this sector, working with over 75 MFIs, banks, and international organizations, primarily in developing countries. He is the Head of Risk and Compliance at Bamboo Capital Partners and sits on the board of several companies in the finance sector

About Q-Lana:

Q-Lana provides a digital platform to transform traditional lending into a knowledge-based, risk focused process. By digitizing the initial assessment, application and approval, monitoring and portfolio management process, as well as the collection, the financial institution generates significant knowledge about the performance and the credit quality of the target clients. This can be used to improve lending decisions, avoid losses and provide advanced support to the clients. Q-Lana replicates the existing lending process and allows for modifications to apply best practice. In addition, Q-Lana provides intelligent reporting and customized risk advisory. Q-Lana is based on a SaaS model that integrates well with existing core banking software and can be implemented within a 3-4 month timeframe. 


[*] MSME FINANCE GAP: Assessment of the Shortfalls and Opportunities in Financing, Micro, Small and Medium Enterprises in Emerging Markets, IFC 2017