The financial crisis may have sent economic growth into a tailspin, but it has been a major boon for one cottage industry: there is no end in sight to the inquiries and investigations into banking that the crisis has prompted. Still, the latest of these inquiries, an Office of Fair Trading investigation into competition in banking for small and medium-sized enterprises, represents an important opportunity.
What the OFT is likely to find in the inquiry, announced last week following the final report of the Parliamentary Commission on Banking Standards, is that there is very little such competition and that has had a damaging effect on the prospects of many SMEs.
The good news, as Small Talk has reported regularly, is that new banks are attempting to shake up the market place. And the launch of the likes of Aldermore, Shawbrook, Metro Bank and others is certainly to be welcomed. Starting from scratch, however, as these banks have, it will take many years before they represent credible competition to the high street giants.
The Independent Commission on Banking, the first set-piece inquiry into banking that took place following the financial crisis, envisaged a major sell-off of branches by Lloyds Banking Group as the best hope for quickly establishing a new challenger bank. Yet three years on, that sell-off has still to be completed – the collapse this year of the Co-op's deal to buy 632 branches from Lloyds prolongs the wait.
The result is that banking in general and SME banking in particular remains a dysfunctional market. In parts of the country there is almost no competition at all.
The results are exactly as you would expect. In the absence of any competitive spur to improve their products and services, the banks, for the most part, have opted not to do so. Charges for SME banking services remain far too high and banks pay little or no interest to small businesses when their accounts are in credit. At the extreme, you get mis-selling scandals such as the interest rate swap crisis, which the banks are now being forced to unpick.
As for lending, the banks should be free to reduce risk if they see fit – most people agree credit was too easy prior to the crisis – and some SMEs will not get credit as a result. The killer statistic, however, concerns the number of SME applications for borrowing that are wrongly rejected by the banks. The Business Finance Taskforce, set up by the banking industry, operates an appeals system for small businesses that think they have been unfairly denied access to credit. It is upholding around 40 per cent of SMEs' complaints.
There are signs of improvement. In September, the Payments Council will introduce rules designed to make it much easier to switch bank accounts. Importantly, these rules will cover the accounts of millions of small businesses – any firm with an annual turnover of less than €2m (£1.7m) and fewer than 10 employees. However, there's not much point in making it easier for small businesses to switch bank accounts unless it's possible for them to get a tangibly better deal by doing so. And in the absence of more robust competition between banks, it is not clear to many SMEs that they will get one.
Moreover, too many businesses still believe that by moving bank, they'll be giving up a working relationship built up over many years. In practice, now banks manage their businesses using centralised and automated controls and processes, this relationship is almost certainly illusory.
In the personal current account market, tougher regulation and relentless effort by groups such as Which? has led to a genuine improvement in the past 10 years. SMEs deserve something similar – if the OFT's inquiry helps them get it, so much the better.
Golden Saint in a £5m IPO to target Sierra Leone
Western mining companies continue to target Sierra Leone, where natural resources exploration has become increasingly important to the developing economy. The latest is Golden Saint Resources, which will today announce an IPO on the alternative investment market that it hopes will raise up to £5m, primarily from institutional investors.
Golden Saint needs the cash to fund the exploration and development of three separate areas in Sierra Leone where it has the rights to look for gold and diamond prospects. The company has already done some preliminary work mapping its assets and believes it can identify deposits that will produce cash flows very quickly. That cash would then be used to bankroll the business as it looks for further and larger gold and diamond deposits in the area.
A number of other international explorers are operating in Sierra Leone, including Aim-listed Amara Mining, and the industry has benefited from the country's relatively stable political environment.
Still, risks remain, with the government increasingly keen to make sure Sierra Leone itself also realises value from its resources.
Edmonds firm set for African spree
Also raising money for African adventures is Africa Oilfield Logistics, which will join the Alternative Investment Market today on completion of a £4.25m placing. The money takes the total funds the company has raised since its launch last December to £6.5m. The cash will be used to buy up businesses focused on oilfield services in sub-Saharan Africa.
The business is run by Phil Edmonds and Andrew Groves, who are well-known in the sector. They already manage Africa-focused, Aim-listed businesses Agriterra, Sable Mining and African Potash. Mr Edmonds is also remembered as a former England cricketer. Given that this new venture will stand or fall on its ability to find the right deals, the experience and contacts of Mr Edmonds and Mr Groves will be crucial. The company says it has already begun looking at several prospects.
Small Business-Woman of the Week: Beatrice Bartlay, founder and managing director, 2B Interface
I launched the business in February 2005:we're a recruitment agency specialising in staff in the shopfitting industry, so it is very niche. I'd been running a public relations agency, but I wanted to do something bigger and more challenging.
I stumbled across the idea accidentally, and I didn't know anything about HR or retail. A friend asked me to help him find a joiner. I made a lot of calls and someone called back and asked if I was running some kind of recruitment agency. My entrepreneurial spirit kicked in, and I saw there was a gap to exploit.
I agreed to meet with that first potential client seven days later. They were the busiest seven days of my life, talking to everyone I possibly could. But by the time we met, I was able to offer a recruitment service. It took me six months to get the company fully up and running. It hasn't always been easy. During the recession, of course we were worried.
Two years ago, it occurred to me that franchising would be a good way to continue growing. We hope to announce our first franchisees next month. We turn over £4m a year and have three offices, and we've won lots of awards. It's all been worth it.