STANDARD CHARTERED BANK PLC

1. Overview
i. Main operations and bank position
Brand - brand is built on international, ethical and sustainable image.
Markets- Focused on the emerging markets mostly due to rampant growth and uncharted territories,
mainly Asia, Africa, Middle East (which came in very relevant in the crisis, investors fled to the
emerging markets)
Products - services focus on SME credit provision (niche market, include various initiatives to
educate SMEs such as SME training programmes in Kenya re credit awareness and management as
well as tailored training along with PwC), wholesale and retail banking as well as specialty in islamic
finance.
Strategy- Strategy is to focus on basic banking services. Focused on deposits rather than
intermediation
Organic Growth for sustained value creating in both wholesale and retail banking
Strong ethical connotations responsible banking and marketing, based on the treating customers
fairly requirement by the FSA. TCF has been incorporated heavily in both such that the bank strives
it to become the core of the business conduct governing both wholesale and retail banking sections.
Up to 2012, the bank was experiencing record profits and growth.
Banking services-wholesale, retail, private (tailor made services designed to understand specific
circumstances and goals. Asset management and portfolio management with custom advice by
investment advisers, investment solutions and access to a bunch of products on various markets),
credit solutions (eg cross border financing), Islamic finance, trust, fiduciary services etc.
Access to financial services-SME finance-lend to SMEs in partnership with governments
Agrifinance-promote agrifinance (highly specialized practices ranging from consultation to insurance)
Microfinance-partnerships with Microfinance institutions, helps tapping into debt capital markets and
leading best practice initiatives.
Islamic finance-Shariah compliant products and banking expertise.
So SME financing in the emerging economies and Islamic finance are niche markets for it.
2. How have they expanded post crisis?
Advocate Chinese currecy-Renmimbi as the main currency to soon hit the market due to the growth of trade
with china and say that it will be the 4
th
largest currency in the world soon (by 2020 It will become the 4
th

most used currency in the world). So can envisage them coming up with a range of services to help
businesses to transact easier, such as the recent signature of the clearning of settlement services Agricultural
Bank of China to provide such services in London. However, the issue is investor confidence in China,
slowdown in its growth and sustainability of the pace of growth, so long run projects have to be weighed
very carefully against any benefits.
Global issues:
ii. Issues loss of value in emerging markets, and ensuing instability. Slowdown in demand for their
goods from other economies. So soon emerging markets will not be doing so great. Investor
confidence also fears a slowdown in China.
iii. Country specific problems-Turkey for example. Also rising inflation in some countries and loose
monetary politics, especially with regards to the policy credibility.
iv. Economic instability in the regions as well-we have an issue of hot money coming in and out rapidly
and hence a rise in interest rates to constrain inflation but that means uncertainty for the borrowers
and risks deteriorating the banks core model of focusing on traditional banking in emerging
economies.
Problems all changed in 2013, was a good bet for the investors but:
i. Competitors are challenging the bank-new local entrants are challenging the bank, with margins from
traditional finance down by 18%.
ii. South Korea problems-has 10% of its assets there. But lending has not been going well and wrote off
$1bn loans off and is currently restructuring its operations.
iii. Trouble in luring investors back-as with the US quantitative easing cessation, the investors are
fleeing to better performing developed world.
iv. Performance in the fixed income trading hasnt been great (eg bonds trading).
Need to rethink and enhance the current strategy and market focus in light of the events that are now
currently happening in an attempt to hedge against such shocks and seek opportunities by being more
flexible but at the same time retaining the same image of a sustainable, ethical bank which manages the risks
well. The downside of the strategy so far has been the rapid expansion into the emerging markets, tapping
into the opportunities they offer esp post crisis but that over reliance on them and lack of diversification has
now caused problems. Plus there is a huge reliance on the wholesale banking in the emerging markets which
accounts for 40% of group revenues and there are about $120m outstanding loans.
Possible solutions:
1. Expansion to Romania
Romania-dubbed as one of the new tiger economies, as the growth rate was 5.2% in the last quarter of 2013,
rendering a total annual growth at 3.5% among the fastest in Europe, at the same time inflation is at a stable
1.1% low. Agriculture has a gross added value of 6%, much higher than the average 1.7% of the EU.
Notwithstanding the growth potential, Romania heavily depends upon the agricultural sector, along with
technology, which in turn is heavily dependent on the EU support due to lack of ability to find funding
within the country itself eg under the Common Agricultural Policy, European Bank of Reconstruction and
Development funding etc However, the criteria for application is very stringent and not everyone can be
granted such funding and performance under CAP so far has not improved at all
1
, with the subsidies
benefitting select few large farms. As a result, there is a lot of projects, especially the ones carried out by the
SME farms which possess the greatest growth potential which are left out of the radar. Obsolete technology
and difficultly in accessing funding to support the agricultural sector is impeding its potential growth. So
standard chartered can use its expertise in the sector as as of 2013 there has been a reduced access to bank
loans.-Romania farmers can only have a 110 Euro/hectare credit from the banks, much lower than the 1700
Euro/hectare EU average as well as lack of modernization and mechanisation
2
.
-The pace of investment is picking up along with market liberalization which occurred in the current year
and a total of almost EUR 10 billion will be available for investments in agriculture between 2014 and 2020,
according to Nicolae Popa, deputy director of the Agency for Funding Rural Investments.

The available amount is of EUR 8.1 billion, plus the national co-financing of 20 percent, so we have
somewhere around EUR 10 billion available to finance investments in agriculture, said Popa, quoted by
local Mediafax.

1
http://www.ecoruralis.ro/storage/files/Documente/ReportCAP.pdf, page 26.

-Romania has a number of strategic partnerships that will aid the development of the agricultural sector in
the nearby future - eg the partnership with Pakistan to enhance the trade between the two countries in areas
including agriculture.
-2013 data-Agriculture - the sector having registered plant productions ranked as 40-year records and having
backed the Romanian economy above expectations - has been the 2013 star.

From 1.6 percent forecast in this spring, the Romanian economic growth was revised upwards to 2.2 percent
for year-end, with the increase in the agricultural gross added value being put at 11.9 percent, up from an
original 6.4 percent.
- Grain exports have become increasingly profitable for Romania in the last years, with Romanian wheat and
corn keeping being some of the most in demand agricultural produce in the foreign market. Romania
shipped 4.5 million tons of wheat and corn to Egypt, Saudi Arabia, Iran, Italy and Spain in the nine months
alone.
The agriculture minister says Romania will be able to ship some 500,000 cattle and 4 - 5 million sheep to
China, given that the animal stock has grown very much up to 14 million heads.
- 2014: As a country with almost 5 million peasant farmers a quarter of the population this was a matter
of serious concern. The peasant farming economy has long been eroding under the open-market policies
pushed by the European Union and the Romanian state. Squeezed out of the market by the agri-investment
giants who take the bulk of the EU's common agricultural policy subsidies, small farmers are facing a
difficult choice: sell up and move west to look for work, or hold tight and navigate a life of increasing rural
poverty.
- 2010: Traian Basescu said on March 11, 2009 "We have a huge bureaucracy, the performance of which
amounts to what just said: nine billion euro put at the disposal of Romania, unused. This is inadmissible and
this shows the deep inefficiency of this apparatus."46 Furthermore, as we have seen this year (2010), the
Romanian state has changed its poli cies halfway through implementing them, or simply not implemented its
policies. The failure to pay subsidies promised at the beginning of 2009 by May 2010 left many peasants
more distrusting the government than they were before, and leads to a general feeling of hopelessness in the
government and its ability to create sound policies or carry out any policy whatsoever. Finally, on a note
related to the above policies, Romanian farmers have great difficulty in accessing credit, banks in Romania
are hesitant to lend to the farms. In other words, because farms are small (lack collateral) and are not as
profitable as other fields, banks do not see a good profit-motive in lending to Romanian small farmers. This
is a problem farmers in many countries face. However, the problem in Romania is compounded because, as
a member of the EU, development of modern agriculture is becoming more important to policy holders.
Also, Romania now has to compete more than ever on the European market. Looking towards other
European countries for examples, Romania's lack of credit comes across as perilous.
-Small landfarmers impact- There are 3.9 million farm holdings in Romania, the majority of which are
Family Farms of extensive semi-natural grassland pastoral systems and mixed farming systems. These semi-
natural small sale farmed landscapes are of significant economic importance. For example, the 1 million
holdings between 1-10 ha (3.1 m ha, 20% of Romanias agricultural area), are classes as semi-subsistence
farms producing for home consumption, local sales and for their extended families. Yet these farms are
estimated to produce 25-30% of national food consumption. They also provide rural vitality, as compared to
the largest farms which are associated with rural poverty (Page and Popa-2013)


-Considering year on year export growth with the non EU countries
(http://ec.europa.eu/agriculture/statistics/factsheets/pdf/ro_en.pdf) and if the trend is to continue which is
likely because the amount of arable land available in the mainland EU is diminishing, then it will make
sense for SC to leverage its microfinance initiative in Romania to support SME farming enterprises eg
through leveraging its expertise in agri microfinancing-by either establishing the microfinancing institutions
itself targeting Romanian agricultural sector or using existing microfinance institutions such as Patria Credit
IFN SA which is a microfinancing agency for small and family businesses as well as micro enterprise
finance.
-Advantages of this is that SC possesses strong agri microfinance expertise eg the one gained from extensive
involvement in African agrifinance it possesses strong presence on the African continent and is well
conversed with the problems of small farmers in developing countries.
-Things to look at: In particular, agricultural production loans are subject to both high physical risks
(unfavorable weather and large outbreaks of crop pests and animal diseases) and economic risks (depressed
markets and prices), which affect the profitability and repayment capacity of farmer borrowers. These loans,
and even more so investment loans which are characterized by increased uncertainty due to longer time
horizons, require specific risk management mechanisms at farm level such as the availability of irrigation
facilities, good farm and business management practices, farm enterprise diversification and insurance
coverage. A distinction should be made between:
individual borrower risk (problem of asymmetric information between lender and borrower and quality of
collateral pledged); and general or systemic risks related with lending to a new type of clientele such as
rural SMEs (overall lack of information, ineffective loan supervision, and collateral problems); risks that
affect a whole region (physical risks in agriculture) or are related with a specific economic activity or sector
(for instance, the competition threat of Asian countries, in particular China, in the textile industry); and risks
of a policy or political nature such as the new norms and standards that are required for Romanias accession
to the EU or the use of non-transparent national subsidy programs. ix Systemic risks, which are largely
beyond the control of financial institutions, will have, in particular, a severe effect on those institutions that
have an undue concentration of their loan portfolio on a specific clientele, geographic region or economic
sector. This explains the normal prudential character of banks in selecting their clientele, matching the
maturity of their assets and liabilities, and diversification of their loan portfolio.
-Moreover, much depends upon the businesses ability to report and ability to assess their credit score and
information due to lack of borrowing information.
2. M Pesa Expansion in rural for farmers, SMEs etc in rural China
-World bank: 600 Million Adults in East Asia and the Pacific Remain Outside the Formal Financial
System. one of the reasons why they dont want a bank account is because either someone in their family
already has one or the banks are too far away.
-China has 263m people that are currently unbanked (Infosys), rural population that is unbanked- On
average, rural residents have access to 0.36 banking outlets per 10,000 people, far below the national
average of 1.34. The Peoples Bank of China has estimated that 64 percent of the countrys rural population
is unbanked.

-SMS banking service is the only thing available in China-current functionality includes-balance enquiry,
pre set fund transfer (from details stored from before), so limited in its use.
-One way in which they can expand into China is to promote financial inclusion by engaging Chinas rural
population which is c 630m people. Its in decline but the market is still large.
-China has a burgeoning mobile payments market, with many players wanting a slice of the pie.
-Chinese rural population is well penetrated with mobile phones as per the 2011 statistics, but rural areas
have far less penetration of banking branches and outlets than do urban areas. The existing number of
outlets, although increasing cannot meet the needs of the Chinese rural population. However, the demand for
low cost financial services remains big in rural China in general. The utility of these bank accounts,
however, is the real question for those interested in financial inclusion. There is a clear recognition that
poorer families, particularly those in remote areas, have trouble accessing accounts and use them mainly for
encashment, which can often require costly travel to bank branches or ATM in distant cities and towns. As
per world bank- 4 percent say they dont need one because someone in their family already has one, and 20
percent say that banks are too far away.
-The Chinese government and both public and private sector players are now embracing branchless banking
alternatives to increase accessibility and utility for millions of low income people, particularly in Western
and Central Chinas less developed areas. In 2011, the Peoples Bank of China launched agent banking
pilots with leading banks and mobile network operators, which quickly built out networks of over 500,000
merchant agents processing cash out only, utilizing POS terminals and bank cards.
-Right now what is available in China as the closest alternative to M-Pesa is F Road- We talked with F-
Road about the use of its solution by low income clients. F-Road is unique in that it includes service to Rural
Credit Cooperatives, which are acknowledged as the key market players reaching the poor, collectively
serving 73 million people in rural areas throughout China. Because the solution works on functional phones
as well as smart phones, it is more accessible for the poor than standard mobile banking
applications. Preliminary research indicates the main users for mobile banking among F-Road clients
banks are micro and small enterprise owners, who use the channel to pay suppliers and make payroll, as well
as for ecommerce and mobile payments, where the entrepreneurs buy wholesale goods online via mobile
from online giants like Alibaba and its TaoBao platform. Uses SIM based technology but demands
installation of a special SIM overlay in order to be functional. With M Pesa-no need for this. All of the
above is quite costly and there is also a question of how useful this is for rural areas where users are not
familiar with technology. So the proposal is for the SC to partner up with the M-Pesa and provide such
services to individuals in rural areas. At the end of 2013 the estimated market for F Road is 7m users which
leaves plenty of market share for the M-Pesa and SC partnership.
-Another is SMS banking service by Agricultural Bank of China SMS banking service enables petty
payments to farmers and microfinance access via SMS such as small loan borrowing and repayment.
-The problem is however, that a large proportion of Chinese rural population remains unbanked especially in
remote regions of China. As per CGAP- The rural poor, migrant workers and SMEs are some of the most
underserved groups in the country, especially when it comes to access to credit. Rural areas are home to
close to half the countrys population, but lending to these households only accounts for 5.4% of all
outstanding loans in the country. As for SMEs, only a minority access bank loans and they often rely on
informal channels to do so.
-CGAP Research- There are several barriers that prevent the large number of unbanked from accessing
financial services.
High costs of delivery, especially in rural areas;
Technology, although widespread, has not yet been applied to solving the financial access problem for
the poor or unbanked;
China lacks a financial inclusion strategy, which has resulted in an uncoordinated approach from the
many government agencies and institutions involved;
Data on financial access and usage is limited, and tracking progress is difficult;
There has been little research to date on what products or services unbanked customers in China
actually need;
With a predominantly public banking sector, government policies and regulations do not always foster
the expansion of financial inclusion on a commercially sustainable basis.

-One of the few sources of finance for the rural people in China is local rural credit cooperatives which
provide credit in rural areas as sanctioned by the peoples bank of China. However, a lot of them are
politicized and are hence involved in policy loans supporting government policy rather than true rural
needs. (Tsai 2002).
-Microcredit schemes were also introduced in rural China, however, in comparison to their global success,
their success in rural China remains limited- Such non-governmental organisations, which now number
about 100 on the mainland, aim to support entrepreneurship and fight poverty by providing small loans to
individuals and businesses who would normally have trouble accessing credit. But they have long been
starved of funding because Beijing has been reluctant to categorise them as bona fide financial institutions,
banning them from receiving deposits.
The Inclusive Finance Wholesale Fund, established last year by Beijing-based wealth-management firm
CreditEase, was designed to change that. Since its launch earlier this year, the Inclusive Finance Wholesale
Fund has received applications for investment from 18 microcredit NGOs. Five of them have passed
assessment and been chosen as the first beneficiaries (2012 data). But that is not enough to solve the
problem of access to credit because the resources of these NGOs are limited and many still do not receive
adequate funding or lack staff.
- Besides these, there were about 850 "new rural financial organisations", including rural banks, microcredit
firms and rural mutual co-operatives, offering similar services as of the end of September, according to
statistics from the China Banking Regulatory Commission. But that is far too few to significantly reduce the
massive numbers currently living in poverty.
-SCs involvement in rural China and penetration is as follows-Partnership with local credit cooperatives
such as its first microfinance program in China to provide working capital loans, without guarantee, to local
cotton farmers. The loans will be disbursed to farmers through an entrustment loan arrangement with the
local Awati Credit Cooperative and the maximum loan amount will be 15,000 yuan (US$2,037). So it is well
conversed with the issued currently facing the Chinese poor and possesses enough knowledge about the
market.
-How can it expand? Leverage and use its market knowledge of rural areas to tap into the unbanked
population. M Pesa enables money to be stored on mobiles and in general is more secure than wire transfer
and was introduced by Vodafone in Kenya. Standard Chartered has a significant presence in rural China and
so can convert existing branches into M-Pesa agents and establish new agents under its name to enable M-
Pesa distribution in the rural areas. Advantages-as a bank SC is more likely to be more secure than any other
rural agents-has the resources to equip its agents with secure technologies to prevent theft etc which can
happen in rural areas due to high crime rates.
-Obstacles-regulation is one obstacle-the stance of Chinese towards microfinancing is changing slowly but
in general it will take some time for them to depoliticize and liberalise the regulations so as to recognize
such forms of payment ad money transfer as legitimate microfinancing structures that need government
endorsement in terms of policy. One other obstacle is that at the moment the service is introduced by
Vodafone only. However, as at January 2014- One of Chinas massive state-backed telecom firms has
looked at buying a multi-billion pound stake in Vodafone in the hope of setting up a joint venture with the
British blue-chip company. City sources said China Mobile, one of the worlds largest mobile phone firms,
has studied the possibility of buying between 5 per cent and 20 per cent of Vodafone. In fact, Vodafone and
China Mobile, which is the biggest provider in China, already have a strategic partnership since 2000, which
is about:

exchange of corporate management, technical and operational expertise, enhanced roaming; multinational
customers; green technology, network roadmap management, joint innovation and R&D, and promotion of
converged LTE technology and LTE terminal development, to improve competitiveness and influence on
international organization, value chain and industry by partnership in management, technology and
operation.
-If this happens in nearby future-then SC can partner up with China Mobile, who can purchase license for
M-Pesa to be used in China for the microfinancing purposes. As per the Vodafone website, the M-Pesa has
achieved the following uses:

In addition to the millions of person-to-person (P2P) and customer-to-business (C2B) transactions, M-Pesa
has made a big difference to peoples lives in other ways.
In Tanzania for example, where the cost of travel prevents many people from getting the medical care they
need, one non-governmental organisation (NGO), Comprehensive Community Based Rehabilitation in
Tanzania (CCBRT), has used M-Pesa to send patients the money to pay for their travel to its hospital.
In Kenya, Water Company customers use M-Pesa to buy credits which are transferred from their phone to
their key fob which is then used to pay for fresh, clean water when they need it.

All of the above can be applied to rural China which suffers from exactly the same issues and where market
is similar. The above arguments can indeed be used to convince the Chinese government to be more lenient
or indeed promote this business at least in the rural context. Also no need to educate people extensively
about the mobile technology already well covered and well conversed with primitive functions as per
above.


3. Helping UK SMEs to obtain credit for further development
-Where is there an opportunity? Two sources of opportunities:
-1. The tarnished reputation of the UK banks eg RBS which were criticized in the Tomlinson report and
were subject to an extensive government investigation of the small business in light of the misspelling and
wrong lending practices. Being an ethical bank, SC could leverage on its ethical image and expertise in
dealing with SMEs, such as their educational campaigns and engagement with SMEs re borrowing. SC can
really leverage on this as an ambassador of the banking industry to turn the image of banking around. As at
18
th
of July 2014 bbc reports that CMA will look into the big four banks in the UK handling the SME
business.
-Particularly, it was still difficult for newer and smaller "challenger" banks to get into the industry,
particularly in Scotland and Northern Ireland. The industry is highly concentrated with the big four UK
banks having 77% of market share-BBC.
-At the moment the SC UK business is focused on Corporate Finance&Institutional Banking Businesses as
well as Private and International Banking, but no lending to SMEs in the UK.
-SC could use this predicament the banks got themselves into to their own advantage as they are not the
subject of the
-Things to look out for: need a thorough understanding of the SME market climate here in the UK. At the
moment they possess SME market knowledge and know how based on the previous experience in emerging
markets but situation in the UK is different and therefore it will take time to get to know the need of their
potential consumers.
-How serious is the government about the small business probe? The government is due to change