DevelopmentandCalibrationofaScoringModelforEuropeanSMEs

MarketResearchGroup
PrajwalAgarwal
ChiaraDiNatale
WissamElKhoury
DorianMarquerAndronov
ShatakshiMohan
BelenNavarroMartin
YoungJooPark


TableofContents
CompanyIntroduction: 3
ProjectDescription: 3
TheRoleofEuropeanSMEs 3
TheEvolutionoftheSMECreditSupplyMarket 3
OverviewofCreditRiskMeasurement 4
TaskandObjective 5
Methodology 6
TraditionalMethods 7
ExpertSystems 7
RatingSystems 7
Introduction 7
Function&Methodology 9
Forecast 10
BestPractices 11
CreditScoringModels 14
Introduction 14
Function&Methodology 15
Forecast 16
BestPractices 16
AlternativeFinance 19
Background&OverviewofNonBankLenders 19
Crowdfunding 20
BestPractices 21
PeertoPeer 22
BestPractices 23
Conclusion 27
InputforScoringModelCalibration 28
Bibliography 30
SMEMarket&Valuation 30
EstablishedMethods 31
AlternativeMethods 32
Rewardordonationbasedmarketplace: 32
Loanbasedmarketplace: 32
Equitybasedmarketplace: 32
Appendix 33
ListofEURegisteredCreditRatingAgencies 33
AlternativeFinanceQuestionnaire 34
AlternativeLenders:ListofContacts 35

2
CompanyIntroduction:

BNPParibaswasformedin2000asthemergerofBanqueNationaledeParis(BNP)andParibas.
Ranked by Relbanks in 2014 as the sixth largest bank in the world by total assets ($2,526.98
billion)1, BNP Paribas serves four domestic retail markets (France, Italy, Belgium and
Luxembourg),whilealsoundertakingsignificantoperationsintherestofEMEA,theAmericas
andAsia.Itsoperationsdivideintotwostrategicbusinessunits:RetailBanking&Services,and
Corporate & Institutional Banking. In all business units, BNP Paribas demonstrates sound,
indeedgrowing,performance:a3.2%growthversus2013,with28,6billionrevenuesinRetail
Banking & Services, and 10,3 billion revenues in Corporate & Institutional Banking it
generatedatotalrevenue(excl.exceptionalitems)of39.2billionin2014.

ProjectDescription:

TheRoleofEuropeanSMEs

SMEs,accordingtoEUregulations,arefirmswithlessthan250employees,andwithanannual
revenuelessthan50million,ortotalassetslessthan43million.Witharound22millionSME
firmsinEurope,SMEoperationsrepresent60%ofgrossvalueaddedintheEuropeaneconomy
and 70% of private sector employment.2 SMEs face difficulties in securing credit despite their
pivotalroleintheEuropeaneconomy:Sincetheglobalfinancialcrisisof200708,SMEssuffer
lowcreditsupply,primarilyduetotherestructuringandimpairmentofthebankingsector.SMEs
are forced to rely more heavily upon banks for credit in Europe than in other advanced
economies.Thisislargelyduetotheabsenceofpublicinformationabouttheircreditworthiness,
thusdiscouragingotherinvestors.Inlightofeconomicinstabilityandnewregulationsfromthe
European policymakers, banks were prompted to increasingly tighten credit standards, thereby
cuttingoffthemostimportantfinanciallifelineofSMEs.Itwasnotuntilmid2014thatbanks
haveslightlyeasedcreditstandards.Inlinewiththistrend,BNPParibasCIBhopestorevitalize
credit to SMEs in nondomestic retail markets and, accordingly, develop a new model for the
creditriskassessmentofSMEs.

TheEvolutionoftheSMECreditSupplyMarket

Due to its evolving nature, the SME lending market is one that calls for careful research and
analysis. In the aftermath of the global financial crisis and its negative impact upon SME
financing in the banking sector, one sees the growth of alternative lenders, some of whom are
employingdigitaltechnologiesandBigDataanalysistoeffectchangesintraditionalcreditrisk

1
http://www.relbanks.com/worldstopbanks/assets
2
EUCommissionandCentreforStrategy&EvaluationServices,EvaluationofMarketPracticesandPolicieson
SMERating:FinalReport,http://ec.europa.eu/enterprise/dg/evaluation/reports_en.htm

assessmentmodelparadigms.ThoughalternativelendersrepresentasmallportionofSMEcredit
supply with 7080% of SMEs currently financed by banks3, there is a clear trend of continued
growth in alternative financing. In the face of evolving credit scoring models, as well as the
emerging models of alternative lenders, BNP Paribas CIB must learn from both the new non
banklenders,aswellasfromotherbanksandtraditionalcreditscoringactors,todevelopitsown
relevantandreliablecreditriskassessmentmethodforSMEs.

OverviewofCreditRiskMeasurement

Forthepurposesofthispaper,wewilldividethemethodsforcreditriskmeasurementintotwo
broadcategories:thosethatadopttraditionalmethodologiesforvaluation,andthosethatdisplay
analternativemethodology.Methodsofthetraditionalmethodologysharethecommonpurpose
ofestimatingtheprobabilityofdefault(PD),withthedefaultreferringtobankruptcyfilingand
liquidationaswell.Traditionalmethodsmaybefurtherdividedintothreecategories:1)expert
systems,2)ratingsystems,and3)creditscoringmodels.

Aspreviouslystated,therearebothtraditionalandalternativemethodsformeasuringthecredit
riskofSMEstoday.Traditionalmethodsofcreditriskmeasurementcanbegroupedintothree
categories:1)expertsystems,2)ratingsystems,and3)creditscoringmodels.Allthreetypesof
methods share the common purpose of estimating the probability of default (PD), with the
defaultreferringtobankruptcyfilingandliquidationaswell.Alternativemethods,ontheother
hand, base the decision of lending credit upon other sources of information besides the PD,
including other financial ratios derived from financial statements, softfacts, collateral, etc.
The table below provides an overview of existing lending technologies besides rating and
scoring:

3
EUCommissionandCentreforStrategy&EvaluationServices,EvaluationofMarketPracticesandPolicieson
SMERating:FinalReport,http://ec.europa.eu/enterprise/dg/evaluation/reports_en.htm

4
As one observes from the table, there exist today a variety of methods for the credit risk
measurement of SMEs. This report will serve as a comprehensive review of these existing
methods,forboththetraditionalandalternativemethodologies.

TaskandObjective

Figure2:BreakdownofCCPWork

The figure above shows the breakdown of the group dedicated to the project. As far as the
marketresearchgroupisconcerned,wehavedecidedtosplitourselvesintotwothematicgroups:
one group for established rating and scoring models and the other to focus specifically on
alternativelenders.

Our task is to conduct a benchmark analysis of existing credit risk valuation models and to
providemoreinformationaboutthebusinessmodelofnonbanklendersand,ifapplicable,their
creditriskvaluationtools.

Ourobjectiveistoanalysestheresultofourresearchandselectqualitativeandquantitativedata
used to evaluate SMEs and put forth a recommendation about those data to include in BNP
Paribasscoringmodel.

Methodology

For this project, we conducted our research under the supervision and guidance of an internal
consultant,ESCPEuropeProfessorofFinanceDr.MichaelTroege,andanexternalconsultant,
BNPParibasemployeeinCapitalMarketsSecuritizationEricSilie.

As stated above, we have decided to split ourselves into two thematic groups: one group to
research established scoring models and the other to focus specifically on alternative lenders.
Research of the former group entails an extensive benchmark analysis of other creditscoring
models: we explored creditscoring options prevalent in Europe. Upon finding these different
models, we examined the type of the qualitative and quantitative information integrated in the
models. The latter focused upon alternative lenders: we familiarized ourselves with the new
entrantsinthealternativelendingmarket.Weexaminedtheirbusinessmodelsand,ifapplicable,
their credit risk valuation tools. We then analyzed in which ways they depart from traditional
creditscoring paradigms. In particular, we took a closer look at the credit valuation models of
thenewInternetplatformsprovidingSMEcreditsupply,seekingtounderstandhowtheyutilize
BigDataanalysistoderivetheirqualitativeandquantitativeinputs.

For the alternative finance research in particular, we outlined the following main steps for
qualitativeandquantitativeresearch:
Desk research: This step constitutes gathering and analyzing information already available
(BNPParibasliterature,informationontheInternet,informationprovidedbyotherentities,
etc.). Desk research allowed us to gain first insight into the lending market and nonbank
lendersplayers.Wevaluedeskresearchfortheprojectprimarilyduetothevalidityofdata
providedbyBNPParibas,aswellasalltherichnessofinformationmadeavailableonthe
Internet.Wecheckedandensuredreliabledatabycarefullyselectingoursources.

6
 Field research: Here, we aimed to understand in more depth the business models of non
banklenders,andinparticularthoseofnewInternetplatforms.Wecarriedoutbothfaceto
faceandSkypeinterviewswithsomeoftheplayersinthelendingmarket.Weinterviewed
10companies,whosecontactinformationmaybefoundintheAppendixonpage(35).We
thenanalyzedqualitativeandquantitativedatausedbyalternativelendersinevaluatingtheir
projects to finance and selection process as well. In addition, we designed a questionnaire
thatincludesamorequalitativeassessmentofthecompaniesseekingforfunds,whichmay
bealsofoundintheAppendixonpage(34).

TraditionalMethods

ExpertSystems

Historically,bankershavereliedonloanofficerexpertswhoassessthecreditqualityonthebasis
of 5 Cs: character (reputation), capital (leverage), capacity (earnings volatility), collateral, and
cycle (macroeconomic) conditions. Due to the lack of a specific weighting scheme of these
parameters,thejudgmentmaybeinconsistentandsubjectiveinforecastingthePD.Asaresult,
artificial neural networks have been introduced to develop more objective expert systems. A
neural network is trained using historical repayment experience and default data. Structural
matches are found that coincide with defaulting firms and then used to determine a weighting
scheme to forecast PD. Every time the neural network evaluates the credit risk of a new loan
opportunity,itupdatesitsweightingschemesothatitcontinuallylearnsfromexperienceto
make the neural networks adaptable systems that can incorporate changing conditions into the
decisionmaking process. The systems perform well (87% prediction rate) during the year of
bankruptcybuttheaccuracydeclinesovertime.

RatingSystems

Introduction

Rating systems provide rankings of the creditworthiness of a company by combining

mathematical or statistical validations with the qualified judgments of credit rating analysts.
With the inclusion of qualified judgments, rating systems thus distinguish themselves from
scoringmodels:whilescoringmodelsareautomatizedduetotheirpurelymathematicalnature,
rating systems are individual with the consideration of both quantitative and qualitative
information. Rating system process thus prove to be more time, as well as more resource
intensive, furthermore complicated by the surrounding legislative framework governing rating
systems.

Ratingsaresolicitedandpaidbyfirms,andthereafterdisclosedtothepublic.Uponsolicitation,
ratings are elaborated and proposed by credit rating analysts, to be then approved by a head
analystorratingcommittee,dependinguponinternalCRA(creditratingagency)regulations.In
Europe,afirmmayonlyissueratingsifitisregisteredattheEuropeanSecuritiesandMarkets
Authority(ESMA)asaCRA.RegistrationattheESMAsubmitsfirmstocompliancewiththe
qualitystandardsofCRAregulation4,aswellastosupervisionfromtheESMA.Atthemoment,
there are 41 of firms registered in the EU to issue ratings, as detailed in the chart in the
Appendix,page(33).5

There exist two types of rating approaches permissible within EU regulation: the standardized
(STD)approachandinternalratingsbased(IRB)approach6.TheIRBapproachmaybefurther
brokendownintotwo,thefoundationIRBapproachandadvancedIRBapproach.

Figure3:OverviewofCreditRatingApproaches

Adetailedexplanationofeachapproachfollows.

4
AccordingtoCRAIIIRegulation(Regulation(EC)No.1060/2009):Creditratingmeansanopinionregarding
thecreditworthinessofanentity,adebtorfinancialobligation,debtsecurity,preferredshareofotherfinancial
instrument,orofanissuerofsuchadebtorfinancialobligation,debtsecurity
5
EURLex,Listofregisteredandcertifiedcreditratingagencies,http://eurlex.europa.eu/legal
content/EN/TXT/?uri=OJ:JOC_2015_033_R_0004
6
AccordingtoArticle107ofEURegulationNo.575/2013onrequirementsforcreditinstitutionsandinvestment
firms:InstitutionsshallapplyeithertheStandardisedApproachprovidedforinChapter2,or,ifpermittedbythe
competentauthoritiesinaccordancewithArticle143,theInternalRatingsBasedApproachprovidedforinChapter
3tocalculatetheirriskweightedexposureamounts[]
http://ec.europa.eu/finance/bank/regcapital/legislationinforce/index_en.htm#maincontentSec2
7
Imagecourtesyofhttp://kbp.vse.cz/wpcontent/uploads/2012/12/Witzany_CreditRiskMan_FG.pdf

8
Function&Methodology

StandardizedApproach

AsexplicatedinEURegulationNo.575/2013,thestandardizedapproachentailstheallocation
ofriskstooneofthesixteenfollowingcategories:
(a) Exposurestocentralgovernmentsorcentralbanks
(b) Exposurestoregionalgovernmentsorlocalauthorities
(c) Exposurestopublicsectorentities
(d) Exposurestomultilateraldevelopmentbanks
(e) Exposurestointernationalorganisations
(f) Exposurestoinstitutions
(g) Exposurestocorporates
(h) Retailexposures
(i) Exposuressecuredbymortgagesonimmovableproperty
(j) Exposuresindefault
(k) Exposuresassociatedwithparticularlyhighrisk
(l) Exposuresintheformofcoveredbonds
(m)Itemsrepresentingsecuritizationpositions
(n) Exposurestoinstitutionsandcorporateswithashorttermcreditassessment
(o) Exposuresintheformofunitsorsharesincollectiveinvestmentundertakings
(p) Equityexposures
(q) Otheritems8

Riskweightsarethentobeassignedtoeachoftheexposurecategoriesinaccordancewiththe
provisions of the EU Regulation No. 575/2013, which dictate the precise risk weights to be
assigned.9Riskweightsarebrokendownintosixlevels,rangingfrom20%to150%.

Six European Central Banks had adopted inhouse credit assessment systems based on the
standardized approach, which incorporate provided ratings. These six banks are: the Banco de
Epaa, the Banque de France, the Central Bank of Ireland, the Deutsche Bundesbank, the
sterreichischeNationalbank,andtheBankSlovenije.10Ithasbeenestimatedthatroughly30%
ofEuropeanbankswouldadoptthestandardizedapproach,primarilysmallerandmediumsized
banks active in the retail, securities and cooperative sectors. However, this estimation is most

8
ExposureclausesdelineatedinArticle112ofEURegulation575/2013,http://eurlex.europa.eu/legal
content/EN/TXT/?uri=CELEX:32013R0575
9
TheriskweightsmaybefoundintheEURegulation575/2013,fromArticle114onwards.
10
EUCommissionandCentreforStrategy&EvaluationServices,EvaluationofMarketPracticesandPolicieson
SMERating:FinalReport,http://ec.europa.eu/enterprise/dg/evaluation/reports_en.htm

likely to be substantially less in terms of credit granted, in light of the predilection of larger
banksfortheInternalRatingsBasedSystem.

InternalRatingsBasedApproach

WithcompliancetotheconditionsandstandardsdelineatedbyArticle144ofEURegulationNo.
575/2013, institutions may receive the right to calculate their riskweighted exposure amounts
usingtheInternalRatingsBased(IRB)Approach.Notableconditionsinclude:
(a) the institution has a credit risk control unit responsible for its rating systems that is
appropriatelyindependentandfreefromundueinfluence
(b) theinstitutioncollectsandstoresallrelevantdatatoprovideeffectivesupporttoitscredit
riskmeasurementandmanagementprocess
(c) the institution documents its rating systems and the rationale for their design and
validatesitsratingsystems11
There exist two levels of the IRB Approach: the Foundation IRB (FIRB) Approach, and the
Advanced IRB (AIRB) Approach. With the FIRB Approach, institutions use their own
empirical models to calculate the Probability of Default (PD) and regulation prescribed values
for Loss Given Default (LGD) and other parameters, such as Exposure at Default (EAD) and
Maturity of Exposure (M). The AIRB Approach goes even further, allowing institutions to
calculatetheirownvaluesforLGD,EAD,Mandothersuchmeasures.

AccordingtotheEUCommissionstudyEvaluationofMarketPracticesandPoliciesonSME
Rating based on over 200 interviews conducted with banks, banking associations, SMEs and
SMEassociations,banksapplyingIRBsystemsremaintheprincipalproviderofcredittoSMEs
intheEU.Thestudyfurthermorespecifiestheimportanceofqualitativedataforsuchbanksto
range from 2040% (the rest being quantitative), while acknowledging that the range may
increaseto6080%forthosebanksspecializedinservicingSMEs.12

Forecast

Inlightofitstimeandresourceintensivenature,creditratingisnotoftenappliedtoSMEs,with
information asymmetry further discouraging the rating process. The market segment of credit
rating systems for SMEs is thus very small, though one that we predict will grow in the near
future. We believe that the credit rating business for SMEs will become increasingly more
attractive as an unexploited market segment due to current legislative trends. To support SME
access to finance, the EU Commission seeks to actively promote the integration of qualitative
indicators,particularlywithinthebankingsegment,forthevaluationofSMEs13.Indoingso,the

11
PleaseconsultArticle144ofEURegulation575/2013forthecompletelistofconditions,http://eur
lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX:32013R0575
12
EUCommissionandCentreforStrategy&EvaluationServices,EvaluationofMarketPracticesandPolicieson
SMERating:FinalReport,http://ec.europa.eu/enterprise/dg/evaluation/reports_en.htm

10
Commission hopes to balance the financial information asymmetry of SMEs. Also to be taken
intoconsiderationareprovisionsoftheCRARegulationIIIimplementedonJune2013:here,EU
ParliamentandtheCouncilexpressfearofoverrelianceuponexternalcreditratingagencies.14
This regulation thereby puts forth measures to combat this overreliance, notably the
encouragementtoputinplaceinternalproceduresforcreditriskassessment.InviewofbothEU
initiatives,wepredictthegrowthofinternalratingsystemsforSMEs.

BestPractices

Standard&PoorRatingServices

Introduction

Standard&Poor'sRatingsServiceshasintroducedanewmidmarketevaluation(MME)scale
for midsize companies. Its purpose is to offer private opinions of creditworthiness for mid
marketcompanies.TheMMEscaleisapplicabletocompanieswithannualrevenuesbelow1.5
billionandtotaldebtfacilitiesbelow500million.Standard&Poor'susesitsglobalcorporate
ratingscriteriaasthebasisforMMEs,buthassimplifiedtheanalyticalprocessandcustomized
partoftheglobalcorporatecriteriatotakeintoaccountthespecificcharacteristicsofmidmarket
companies.Asisthecasefortheratings,anMMEdoesnotconstitutearecommendationtobuy,
sell,orholdaparticularsecurity,nordoesitcommentoninvestmentmeritorthesuitabilityofan
investmentforaparticularinvestor.15

Inputs&Outputs

MMEs are based on Standard & Poor's corporate rating methodology, but use a simplified
analyticalprocessandacustomizedanalyticalframework.MMEsarenotcreditratingsandare
notsubstitutesforcreditratings.Furthermore,S&Pdoesnotapplycertainattributesofratings
such as outlooks, shortterm debt evaluations, or local and foreign currency distinctionsto
MMEs.Theydo,however,assignCreditWatchplacementstoMMEs,inthesamecircumstances
as under Standard & Poor's rating definitions. Furthermore, the '+' and '' modifiers that they
applytoMMEdebtinstrumentsdifferfrommodifiersoncreditratings.Intheircreditratings,the
'+'and''modifiersforbothissuerandissueratingsindicatetherelativestandingoftheoverall

13
SeeEUCommissionsActionPlantoimproveSMEaccesstofinance,http://eur
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0870:FIN:EN:PDF
14
Overrelianceoncreditratingsshouldbereducedandalltheautomaticeffectsderivingfromcreditratingsshould
begraduallyeliminated.Creditinstitutionsandinvestmentfirmsshouldbeencouragedtoputinplaceinternal
proceduresinordertomaketheirowncreditriskassessmentandshouldencourageinvestorstoperformadue
diligenceexercise.EUCommission,RegulationEUNo462/2013oftheEuropeanParliamentandoftheCouncil
of21May2013amendingRegulationNo1060/2009oncreditratingagencies,http://eur
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:146:0001:0033:EN:PDF
15
MidMarketEvaluation:DefinitionAndScale,Standard&PoorsRatingServices,
http://www.standardandpoors.com/spf/upload/Ratings_EMEA/MidMarketEvaluationDefinitionAndScale.pdf

11


creditworthiness within the major rating categories. In their MMEs, by contrast, the '+' and ''
modifiersapplyonlytodebtinstrumentMMEsandreflecttheirinstrumentspecificexpectations
forrecoveriesintheeventofadefaultratherthantherelativelikelihoodoftimelypayment.
To arrive at MMEs, they typically analyze information the midmarket company provides,
including:
Annualauditedfinancialstatementsaswellasanyinterimreports
Informationonthecompany'sliquiditysituationfromasurveyand
Information they gain from a meeting we conduct with the company's management
(typically in the local language) to understand its governance, strategy, and financial
policy.
After initial analysis, they update an MME and accompanying report annually, and perform
periodicmonitoring.Forboththeannualanalysisandperiodicmonitoring,theyreviewupdated
information and a quarterly survey of liquidity that the midmarket company provides. They
furthermore meet with the company on an annual basis. Client companies are responsible for
complyingwithminimuminformationrequirement.Inapplyingthesecriteria,S&Phasmodified
its liquidity methodology to accommodate the midmarket scale. S&P also pays particular
attention to certain specific characteristics of midmarket companies, such as the impact of its
revenuesizeonbusinessriskassessment,theimpactoffamilyownershipontheassessmentof
governanceandmanagement,andtheanalysisoffinancialpolicy.

Forrecoveryevaluations,thereisasimplifiedapproach,whichresultsinthreebroadcategories
forMMEs:high,medium,orlowrecoveries,ascomparedtoamoregranularscaleforratings.
Furthermore,thejurisdictionspecificadjustmentsthatStandard&Poor'sappliestoitsrecovery
andissueratingsdonotapplytotheMMEs.Iftheyexpectamidmarketdebtinstrumenttobe
securedandtohaveaparticularlyhighrecoveryintheeventofadefaulttypicallyabove70%
theyattributea'+'toit.Iftheyexpectaninstrumenttohaveaparticularlylowrecoveryinthe
event of defaulttypically below 30%they attribute a '' to it. If they expect a recovery of
between 30% and 70% they do not apply a modifier. They believe these identifiers are a
particularlyusefultooltoenablemarketparticipantstobenchmarkrecovery.16

BelowatabledisplayingtheratingscaleofStandard&Poors:

Standard&Poors,MidMarketEvaluation:DefinitionAndScale,accessedonJune10,2015,
16

http://www.standardandpoors.com/spf/upload/Ratings_EMEA/MidMarketEvaluationDefinitionAndScale.pdf

12
 17

Table1:Standard&Poor'sMidMarketEvaulationScale

BanquedeFrance

Introduction

BanquedeFranceisrecognizedasanexternalorganforcreditevaluation.Valuationproposed
by Banque de France is utilized by the Eurosystem Credit Assessment Framework, otherwise
acknowledgedastheinhousecreditassessmentsystemoftheEurosystem.AccordingtoBanque
De France, valuation is an analysis of the capacity of an enterprise to honor its financial
engagements across a time horizon of 3 years. All enterprises with social home in France are
analyzed according to information provided by the database FIBEN (Ficher bancaire des
enterprises).

Inputs&Outputs

Theinformationcollectedtoconducttheriskevaluationofanenterpriseareasfollowing:
Descriptive information: name of company, activity code, address of home office, judicial
category,capital,dateofestablishment,etc.
Accountsandfinancialinformation

ImagecourtesyofStandard&Poors,MidMarketEvaluation:DefinitionAndScale,accessedonJune10,
17

2015,http://www.standardandpoors.com/spf/upload/Ratings_EMEA/MidMarketEvaluation
DefinitionAndScale.pdf

13


Judicialinformation
Informationregardingfinancialandeconomicenvironmentoftheenterprise
Qualitativeinformation:informationcollectedviainterviewswiththechiefexecutivesofthe
enterprise
Information collected from banks & INSEE (National Institute of Statistics and Economic
Studies)
Themodelforvaluationentailstwoelementsascorefortheenterprisesactivityandascorefor
the enterprises credit (examples include A3++, E9, D5, etc.). While the score for enterprise
activity characterizes the level of activity in the enterprise (with A as the highest level of
activity),thescoreforcreditanalysestheenterprisescapacitytohonoritsfinancialengagements
acrossatimehorizonof3years.18

CreditScoringModels

Introduction

Scoring models, like rating systems, rank the creditworthiness of a company. However, unlike
rating systems, the ranking is based uniquely upon pure mathematical or statistical models
developed from financial data and other quantitative company information. Whereas rating
systemsaretypicallypaidbytheratedfirmandthereafterdisclosedtothepublic,scoringispaid
by the investor, with results confidential to the public. Furthermore, while the European CRA
(Credit Rating Agency) industry remains under the supervision of the European Securities and
MarketsAuthority(ESMA),thereexistsnoregulationoverseeingtheBI(BusinessInformation)
&Scoringindustry.

Asoftoday,themajorityofSMEsarescored.TheprimaryreasonforthisisthelackofSME
financialinformation.ThemajorityofSMEsinEurope,indeedover90%19,arenotrequiredto
filedetailedfinancialstatements,andthosewhodothensubmitonlyabridgeddata.Theshortage
of financial information, indeed, discourages the application of the more exhaustive, resource
intensive rating systems to SMEs, where high ratingcosts may not contribute much more
perceivedaddedvaluewhencomparedtoscoring.

Theimagebelowdrawsthedistinctionsbetweenscoringandratingaccordingtocompanysize.

18
Guidedereferencedelacotation,BanquedeFrance,accessedonApril20,2015,http://eur
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0870:FIN:EN:PDF
19
EvaluationofMarketPracticesandPoliciesonSMERating,pg.17.

14
 20

Figure4:Corporates'CreditRiskAssessmentbySizeinanAverageCountry

Inthisillustration,oneobservestheriseofScoring++,atermdescribingthosescoringmodels
which have evolved to include the evaluation of qualitative information out of need for more
information. The evolution of scoring ++ models thus falls in line with EU Commission
initiatives to increase the integration of qualitative information in risk assessment processes to
easetheaccesstocreditforSMEs.21

Function&Methodology

There are two types of scoring models: univariate and multivariate credit scoring models.
Univariatemodelscomparevariouskeyaccountingratiosofpotentialborrowerswithindustryor
group norms. Multivariate models, on the other hand, combine and weigh key accounting
variablestoproduceeitheracreditriskscoreortheprobabilityofdefault(PD).Formultivariate
models,thereexistfourmethodologicalforms,representingdifferenteconometricapproachesto
estimatingthePD:1)thelinearprobabilitymodel,2)thelogitmodel,3)theprobitmodel,and3)
themultiplediscriminantanalysismodel.Themultivariatemodel,morespecificallythemultiple
discriminant analysis model, represents the most commonly used traditional credit risk
measurementmethodology,withtheZScoreofAltmanasthepioneeringmodel.

Togaininsightintotheindustrybestpractices,wewillcloselyanalyzetwowellknownscoring
models:ZscoreofAltmanandMoodysRiskCalc.

20
EuropeanFinancialStabilityandIntegration,EUCommissionReport2013,pg.132.
21
Seepage12ofEUCommissionsActionplantoimproveaccesstofinanceforSMEs,http://eur
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0870:FIN:EN:PDF

15


Forecast

We have seen the rise of scoring++ models, those models which have evolved to incorporate
more qualitative data into the scoring processes. In light of the growing availability of digital
data,aswellasEUinitiativestopushtheintegrationofqualitativedataintoSMEvaluation,we
believethatthedevelopmentofscoringmodelswillcontinueinthisdirection.Inotherwords,we
predictthatthelinebetweenscoringandratingmodelswillincreasinglyblurtoheedthegrowing
relevanceandavailabilityofqualitativedata.

BestPractices

AltmansZScore

Introduction

Edward I. Altman first published his Zscore formula for predicting bankruptcy in his seminal
paperFinancialRatios,DiscriminantAnalysisandthePredictionofCorporateBankruptcyin
1968.Sinceitsinception,AltmansZscorehasbecomeoneofthemostwidelyacceptedmodels,
indeedbecomingacornerstoneofthecreditscoringindustry.

Inputs&Outputs

Inhispaper,Altmandetailshisapplicationofmultiplediscriminantanalysistotwogroupsof33
firms,thefirstgrouprepresentingmanufacturerswhofiledabankruptcypetitionduringtheyears
19461965, and the second being a paired sample of manufacturing firms still in existence in
1966.Fortheanalysis,Altmancollectedinformationfrombalancesheetsandincomestatements,
compilingalistof22potentiallyhelpfulvariables.Altmanthenproceededtonarrowthislistof
22tofivevariables,whoseweightedrelationshipthenyieldtheZscoreformula:

Z=.012X1+.14X2+.033X3+.006X4+.999X5,where
X1=WorkingCapital/TotalAssets
X2=RetainedEarnings/TotalAssets
X3=EarningsbeforeInterestandTaxes/TotalAssets
X4=MarketValueEquity/BookValueofTotalDebt
X5=Sales/TotalAssets

TheZscorecanthenbeinterpretedasfollows:
Z>2.99SafeZones
1.81<Z<2.99GreyZones
Z<1.81DistressZones22

16
ScopeandStatus

AltmansZscorehasgainedinternationalacceptance,astheZscoreformulahasbeenadapted
tocountryspecificationswithvariationsintheexplanatoryvariables(X1,X2,X3).Ithasnot
onlybeenadaptedfordifferentcountries,butalsofordifferentindustries,includingprivatefirms
(Zscore)andnonmanufacturingcompanies(Zscore).

MoodysRiskCalcPlus

Since its foundation in 1909, Moodys Corporation has established itself as one of the largest
global players in the financial world. The corporation is the parent company of two divisions:
MoodysInvestorsServiceandMoodysAnalytics.WhiletheInvestorsServiceprovidescredit
ratings, Moodys Analytics develops tools and best practices for financial risk management.
AmongthesetoolsisMoodysRiskCalcPlus,ascoringmodelwhichmaybetailoredforSME
lendingneeds.

Inputs&Outputs

Moodys RiskCalc Plus is an econometric model which produces a forwardlooking default

probability based upon company specific financial statement items. By analyzing previous
defaults,Moodysdetermineswhichfinancialratiosaremostimportantinpredictingdefaultand
gatherstheseratiostocreatethecreditresearch(CRD)database.

Theinputsofthismodelthusentail:
Currentdate
Dateofthefinancialstatements
Industryspecifications
Balancesheetitems(tradedebtors,tradecreditors,totalassets,currentliabilities,etc.)
Incomestatementitems(turnover,netincome,otherincome,taxes,interestspayable,etc.)

With the database, Moodys then weighs the ratios according to their historical importance in
default, as displayed in the formula below. These ratios are further multiplied by weights to
determineaoneandfiveyearEDF.

FinancialStatementOnly(FSO)EDF=1x(Liquidity)+2x(Profitability)+3x
(Activity)++SectorAdjustment

Altman,E.Financialratios,discriminantanalysis,andthepredictionofcorporatebankruptcy.TheJournalof
22

Finance(1968).AccessedonMay8,2008.
http://onlinelibrary.wiley.com/doi/10.1111/j.15406261.1968.tb00843.x/full

17


Theinputsthusyieldthefinaloutputs:
OneandfiveyearEDF
Termstructure(cumulative,annualizedandforwardEDF)
Graphs(relativecontributions,relativesensitivity,percentile,stresstest)
Ratios (Liabilities/Assets, Profit Margin, Cash Flow/Interest Expense, Change in ROA,
SalesGrowth,CurrentRatio,QuickRatio)23

It is worth noting the sector adjustment: with its ability to adjust the valuation process to
differentspecifications,theRiskCalcPlusmodelprovesrelevantandbroadinscope.

ScopeandStatus

Inadditiontoitsadjustmentsforindustryspecifications,MoodyshascompiledseparateCRDs
for countries around the world. This thus allows for the adaptation of the valuation model to
different country specifications in addition to industry specifications. A chart detailing the
differencesbetweencountriesintheirdeterminingratiosfordefaultprobabilitymaybefounded
intheAppendix,onpage().

23
MoodysAnalytics.RiskCalcPlusforSMECreditRisk.AccessedonApril23,2015.

18
AlternativeFinance

Background&OverviewofNonBankLenders

In the years following the financial crisis, the credit transmission of channel has become
impairedasregardsquantity,priceanddistributionofcredit.Theeffectsofthisareparticularly
feltbysmallandmediumsizedenterprises(SMEs),especiallyinEuropeastheyheavilyrelyon
traditionalbanklending.SMESarefacedwithimportantfinancingconstraintsinadeleveraging
environment with restricted credit availability from banks and for this reason broadening the
rangeofnonbankdebtfinancinginstrumentsforSMEsshouldhelpmakingthemmoreresilient
tofinancialshocks.NonbankmarketbasedfinancingcanimprovetheflowofcredittoSMEs,
whileenhancingdiversityandwideninparticipationinthefinancialsystem.

Thetablebelowpresentsthedifferentcategoriesofnonbanklenders:

Table1:OverviewofNonBankLenders

19


OnbehalfofBNPParibasandwithinthescopeofourCompanyConsultingProject"Market
ResearchforSMECreditScoring",theMarketResearchGroupinterviewedseveralalternative
lendersandprovidersofscoringsystemsbywayofphonecalls,facetofacemeetingsoremail
exchanges.

Crowdfunding

Definition:Thepracticeoffundingaprojectorventurebyraisingmonetarycontributionsfrom
alargenumberofpeople,typicallyviatheinternet.Oneearlystageequityexpertdescribeditas
the practice of raising funds from two or more people over the internet towards a common
Service,Project,Product,Investment,Cause,andExperience,orSPPICE.

Thecrowdfundingmodelisfueledbythreetypesofactors:theprojectinitiatorwhoproposesthe
ideaand/orprojecttobefundedindividualsorgroupswhosupporttheideaandamoderating
organization(the"platform")thatbringsthepartiestogethertolaunchtheidea.

In2013,thecrowdfundingindustrygrewtobeover$5.1billionworldwide

Thetablebelowportraysthemaintypesofcrowdfunding:

Table2:TypesofCrowdfunding
Equity Loan/Debt Reward Litigation Charity
Collective effort of Debtbased Rewardbased crowdfunding has Allowsindividuals Collective
individuals to crowdfunding from been used for a wide range of to invest in legal effort of
support efforts nonbanks became purposes, including motion picture disputes, globally, individualsto
initiated by other more prominent as a promotion,freesoftwaredevelopment, allowing those in help
people or form of inventions development, scientific need of litigation charitable
organizations crowdfunding in research,andcivicprojects. funding to obtain it causes
through the 2012 KeepitAll' (KIA) where the fromtheirpeers.
provision of finance Prospective entrepreneurialfirmsetsafundraising Individuals are
intheformofequity borrowers first goal and keeps the entire amount given a stake in the
submit their raised regardless of whether or not claim they have
requirements,andare they meet their goal, and 'Allor funded,whichallow
then matched with Nothing' (AON) where the funders to multiply
pools of investors entrepreneurialfirmsetsafundraising their investment in
who are willing to goalandkeepsnothingunlessthegoal justice many times
accept the credit isachieved." over if a case
terms succeeds.

Companieswhichpartofeachcategoryarethefollowing:
1. Equitybased:Anaxago
2. Loanbased:Prexem
3. Rewardbased:KissKissBankBank
4. Litigationbased:Notapplicableinourstudy
5. Charitybased:Notapplicableinourstudy

20
BestPractices

Anaxago

WeinterviewedMrs.CarolineMaraud(cofounder),tounderstandhowtheyworkandtoknow
moreabouttheirbusinessmodel.Afterafacetofaceinterview,wegotthefollowing:
Anaxago is a 3 year old equity based crowdfunding firm with more than 3000 people in their
onlinecommunity.Withthepurposeofbuyingsharesandresellingthemlateratahigherprice.
Theaverageticketentryforinvestmentisabout10,000Eurosandthevalueoftheprojectsthat
theyengageinareabout250,000Euros.
Concerningtheselectionprocess,theyhavebuiltaninhousesoftwarewithmorethan80control
points which helps them select and choose between all the firms that seek funding. A more
generalcontrolisperformedaswellbyaskingquestionsaboutwealth,capacityofsavings,and
taxation.Prexem
Prexem is a loan based crowdfunding platform, which offers a system that allows investors to
select firms that offer reimbursement protection. In case of default, the company repays all
parties depending on when the default happened. They have an internal assurance of 5% that
entrepreneurshavetopayextratoaccountforthedefault.
For the selection process, an internal software is used, that was developed by polytechnique
students,tocalculatethecostofrisk.Theyalsolookatthecapacitytogeneratecashflowwhile
selectingbetweenthebatchoffirmsthatneedfunding.

21


Itisgoodtonotethattheyonlyserveverylocalcompanieswithaminimum1yearofoperations.
Howeverthisisnotsufficientasthosecompanieshavetohaveatrueprojectbehindtheirseeking
offunds.

PeertoPeer

Commonly abbreviated asP2PL, PeertoPeeris the practice oflendingmoney to unrelated

individuals,or"peers",withoutgoingthroughatraditionalfinancialintermediarysuchasabank
or other traditional financial institution. P2PL is not to be confused withpeer to peer
investing(P2PI). This lending takes place online on peertopeer lending companies' websites
using various different lendingplatformsandcredit checking tools. Many also use the
abbreviation "P2P" when discussing the peertopeer lending or investing industries more
generally.

MaintypesofP2P

ConsumerLending BusinessLending
Table3:Consumervs.BusinessP2PLending

Companieswhicharepartofeachcategoryarethefollowing:
1. Consumerlending:Lendingclub,Kreditech
2. Businesslending:LendingClub,LoanBook,andFundingCircle,Kreditech

22
BestPractices

LoanBook

LoanBookisaP2Plendingplatformwhichwasfoundedin2012tocatertoSMEs.Adetailed
riskanalysis,ongoingmonitoringofcredit,aswellasregularfinancialupdateofinformationis
conductedpriorgrantinganyloan.

The selection process is done on several levels. First, the preselection criteria should be in
accordance with external agencies. Second, the internal selection should be based on an
advancedmodelofriskanalysis.

P2P lending specializing in loans to SMEs. Founded in 2012, the company born with the
followingaims:

Toprovideanovelactiveinvestorswithanexcellentrisk/returnratio.

Providebusinesschannelefficient,transparentandflexiblealternativefinancing.

23


Analysis,managementandcarefulselectionofcredit

Conductingadetailedriskanalysispriortothegrantingofanyloan

Ongoingmonitoringofcreditimpactofeachborrower

Regularupdatingoffinancialinformationandkeytaxofeachborrower.

Thepreselectioncriteriainaccordancewithmodelsandexternalagencies.

Asecondfilterinternalselection,basedonanadvancedmodelofriskanalysisbasedonthe

employingmajorbanks.

Continuousanalysisofloans,toensurethat,shouldanyincidentoccur

KreditTech

KreditechisaGermangroupdealingwithonlinecreditbasedpeertopeerlender(foundedin
2012)and220employees.TheKreditechGroupissplitintotwoparts:Kredistandsfor

24
subsidiaries,whichprovidecredittoprivateindividualsandtechcompanydevelopingbanking
technologyandsupportservices
ThelendingplatformsusedbythegroupsareKredito24,Zaimo,andFlexinero.Theyprovide
shorttermloanstoindividualsorsmallSMEsandtheyservedthefollowingmarkets:Poland,
Spain,CzechRepublic,Russia,Mexico,Australia,Peru,DominicanRepublicandKazakhstan.

Thecreditworthinessanalysisiscarriedoutusingonlinedatainsteadofusingtraditionalcredit
rating information. Kreditech uses a selflearning algorithm, which analysed big data. This
modelcalculateindividualscreditscoreinsecondsusingupto20,000datapoints,aslocation
basedinformation(GPS),socialnetworkinginformation(likes,friendsandposts),hardwaredata
(operatingsystem,browser,etc.),onlineshoppingbehaviorandgeneralonlinebehaviorinorder
todeterminealoanapplicantscreditworthiness.

FirstM&Atransaction:Amarketleadingbankaccount/KYCverificationtechnology
Hamburg,Germany,January14,2015Kreditech,theconsumerfinancetechnologyGroup,has
acquired 100% of Kontomierz.pl Sp. z o. o. (Kontomierz) for a seven digit amount plus
Kreditech shares. Kontomierz has built a market leading technology named KontoX to verify
client identity (KYC) and gain readonly access to bank accounts. KontoX provides a missing
APItobanksystems.TheAPIusesasophisticatedfinancialtechnologythatworksworldwide
withanybank.

Kontomierz is the leading provider of account aggregation technology in Europe. Having

developed unique expertise in the field of financial information, we have been providing
valuableB2BandB2Cservicesformanyyears.Kontomierzhasnetrevenuesaround1mEURat
positiveEBITandthreedigitannualgrowth.Foundedin2009,KontomierzhasbuiltaEuropean
widebrandwithrenownedB2BclientssuchasAliorBankandIdeaBank.The16strongteam
based in Warsaw will stay as an independent section within the Group.The flagship KontoX
Service API allows for automated, programmatic, readonly access to online bank accounts of
arbitrary individuals provided they granted consent. This enables instant identity verification
(KYC)andfinancialdataretrieval.FinancialinstitutionsdeployKontoXtoperfecttheirproduct
range for consumers and SMEs. This includes account switching (automated migration of

25


relevant data from the previous account including standing orders, direct debits, recurring
transfers, recipient directory), credit facility (automated preliminary assessment of customer
creditworthiness that saves the customer the effort of providing the relevant documents if
financing is not granted), and proving a customers identity towards third parties. KontoX
technologysupportsover50banksacrossPoland,Russia,Spain,CzechandSlovakia.
Between2013and2014KreditechobtainedfundingfromEuropeslargestgrowthdebtprovider
KreosCapital.Kreditechhassecuredasacreditlineofupto7mUSDfirstand15mUSD.

In2015KreditechGroupannouncedtodaythecompletionofaUSD200millioncreditfacility
fromVictoryParkCapital,anassetmanagementfirmfocusedonmiddlemarketdebtandequity
investmentsbasedintheUnitedStates.

26
Conclusion
The need for small and mediumsized companies (SMEs) to access new sources of finance is
well recognised globally and the availability of alternative finance can reduce dependence on
banklendingasthemainsourceoffinancetotherealeconomy.

Alternativefinanceprovidersneedtomakecreditdecisions,butareoftenlesswellplacedthan
bankstodosobecausetheydonothaveasmuchcreditinformationandcreditanalysisskillsas
banks. Alternative, nonbank debt finance is therefore very dependent on finding adequate
solutionstotheproblemofaccesstocreditinformationandanalysisskills.

Our research allowed us to observe that on one hand there is still a consistent prevalence of
standardized models among alternative finance players (Moodys, S&P, Score & Decisions,
etc.). On the other hand, some of the market place are developing or developed their internal
creditscoringmodels(equitybasedcrowdfunding)andtheyaretryingtoadaptmoreandmore
theirvaluationtoSMEsneeds,forinstanceinvoicetradingplatform.However,thoseplayersare
becomingmorestringentinselectingprojectstofund(only15%projectselected)andtheyare
relyingnotonlyonquantitativeinformationtoevaluatetheirclientscreditworthiness,butalso
onqualitativeinformation.

27


Newtrendsshowthatlendingcompanies,someofwhicharebackedwithventurefundingfrom
Google Ventures and Accel Partners, are looking at potential problems, such as whether
applicantsputthesamejobinformationontheirloanapplicationastheypostedonLinkedln,or
if they shared on Facebook that they had been let go by an employer. For instance, a small
businessthatdrawsnegativereviewsoneBayalsocouldundermineitschancesofgettingcredit.

InputforScoringModelCalibration

RoleofQualitativeInformationinScoringModels

Thesoftadjustmentsofquantitativescoringanalysts
A scoring model is a set of decision models and of their underlying techniques that support
lendersinthecreditdecision.Thesetechniquesdeterminewhowillgetcredit,howmuchcredit
shouldbeissued,andwhatoperationalstrategies,intermsofprofitability,shouldbepursuedby
the borrowers to make requirements on debt to lenders. Based on actual data, credit scoring
assessesthedefaultriskoftheborrower.24
The qualitative analysis of the information is a more difficult process compared to the
quantitativescoring,becausemeasurablefiguresstoredinthedatabasecannotbeautomatically
analyzed.ThemostimportantcreditrelevantinformationallowingtheassessmentoftheSMEs
creditworthinessiscontainedinthequalitativedisclosures.Thisprocess,basedontheanalysisof
a set of precise figures with the help of clearly defined standards, can be considered as
objective in company evaluation. The quantitative analysis, taking into account subjective
parameters,25playstheroleofsoftadjustmentsinfinalbusinessdecisionmaking.
While analyzing data, the scoring model disregards certain observable characteristics, such as
managerspersonalityorlocation,forinstance,becauseofcertainlegalrestrictionsorsimplyby
definitiontheseborrowerscharacteristicscannotbedirectlyobservablebyquantitativemodels.
Moreover, scoring systems are general decision models, and as such they are not adapted to
specificSMEs.They,therefore,ignoretheprojectorborrowercharacteristics.Finally,itisnot
practicallyfeasibletoconditionthescoreonqualitativeinformation,whichishardorimpossible
tocode.
Methodology:
Bycollectingalargertypeofqualitativeinformation,thequalitativeaspectallowstorefinethe
analysisdataandtoimprovetheaccuracyofthedefaultriskassessment.Inotherwords,during
theinformationprocessingthequantitativepartdescribes,whatyoucansee(figures,business,

StatSoft,StatisticaDecisioningPlatform,DellGroup:http://www.statsoft.com/Textbook/CreditScoring
24

Screening in New Credit Markets, Can Individual Lenders Infer Borrower Creditworthiness in PeertoPeer
25

Lending?,HarvardKenneySchool,2009:http://www.hks.harvard.edu/fs/akhwaja/papers/PeerLending_09.pdf

28
etc.),whilethequalitativetriestounderstandwhatyoucannotsee(profile,businesspractices,
etc.)?.
Online lenders, like peertopeer lending platforms, facilitate the screening of the borrowers
creditworthinessbyonlinecreditapplicationandflexibletermscomparetoclassicbanks.While
such markets may be better at utilizing nonstandard/softer information, alternative lenders
typicallylackthefinancialandscreeningexpertiseoftraditionalbanks.
Throughourresearchonthealternativelendingmarket,aswellasthroughourexchangeswith
the lending companies, we tried to select and compose a set of relevant questions, which may
improvetheaccuracyofthescoringmodeloftheScoringGroup.Thesequestionsareclassified
by approaches depending on which aspect the lender should focus on to better define the
creditworthinessoftheSME,takingintoaccounttheparticularityoftheprojectorthecompany
beingscored(industry,sizeofthecompany,etc.).
This combination of quantitative and qualitative approaches allows to have a general and
standardizedscoringofSMEfiguresinthewaybanksdo,butatthesametimetomakeamore
personalizedanalysisspecifictotheproject,likemarketplacedoes.
ThesetofquestionsfortheScoringGroupisprovidedbelow:

Localizationapproach:
Howfarfromthecompanydoesitsmanagementlive?
Isthecompanylocatedinagrowingindustrialparkorinanexpensivebusinesscenter?
Howfaristhecompanylocatedfromthemaintransportclusters?

Onlineapproach:
Online analysis of SMEs data, such as locationbased information (GPS), social networking
information (likes, friends and posts), hardware data (operating system, browser, etc.), online
shopping behavior and general online behavior in order to determine a loan applicants
creditworthiness.
Basiccodedinformationdrawnfromsoft/qualitativelistingcontent(pictures,textdescriptions,
friendendorsements,etc.)

HRapproach(e.g.Consulting):
Whatistimelimitestablishedtoprovideallthedocumentstothelenders(e.g.time,attitudeof
theclient,numberofexchangesofemail,etc.)?
Hastherebeenanyassessmentofcompanysattitudebytherelationshipmanager?Ifyes,what
areitsresults?
WhatarethecompanysHRratings(e.g.thebestplacetoworkat)?

Patentapproach(e.g.pharmaceuticalindustry):
HowdoestheSMEsprotectitpatents,trademarkorcopyright?

29


Itthetrademarkthecompanywellpositionedinsomerankings?
ThisapproachtriestoanalyzerisksforSMEs,whichvalueorbusinessisbasedontheintangible
assetsaspatents.

30
Bibliography

SMEMarket&Valuation

Altman,ESabato,G.Wilson,N.TheValueofQualitativeInformationinSMERisk
Management.AccessedonApril29,2015.
http://people.stern.nyu.edu/ealtman/SME_EA_GS_NW.pdf

CentreforStrategy&EvaluationServices.EvaluationofMarketPracticesandPoliciesonSME
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http://ec.europa.eu/enterprise/policies/finance/index_en.htm

EUCommission.CapitalrequirementsregulationanddirectiveCRR/CRDIV.Accessedon
May15,2015.http://ec.europa.eu/finance/bank/regcapital/legislationin
force/index_en.htm#maincontentSec2

EUCommission.CommunicationfromtheCommissiontotheCouncil,totheEuropean
Parliament,totheCommitteeoftheRegions,andtotheEuropeanandSocialCommittee.An
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lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0870:FIN:EN:PDF

EUCommission.EuropeanFinancialStabilityandIntegration.Report2012.AccessedonMay
15,2015.http://ec.europa.eu/internal_market/economic_analysis/docs/efsir/130425_efsir
2012_en.pdf

Eurostat.KeyfiguresonEuropeanbusiness,withaspecialfeatureonSMEs.Eurostat
Pocketbooks,2011.

InternationalFinanceCorporation.TheSMEBankingKnowledgeGuide.IFCAdvisory
Services:AccesstoFinance,2010.http://www.ifc.org/wps/wcm/

OECD.FinancingSMEsandEntrepreneurs.AnOECDScorecard.August23,2013.
http://www.oecdilibrary.org/industryandservices/financingsmesandentrepreneurs
2013_fin_sme_ent2013enjsessionid=1ac4hsoo7imrv.xoecdlive03

OfficialJournaloftheEuropeanUnion.RegulationEUNo462/2013oftheEuropean
ParliamentandoftheCouncilof21May2013.AmendingRegulationECNo1060/2009on
creditratingagencies.AccessedonJune15,2015.http://eur
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:146:0001:0033:EN:PDF

OfficialJournaloftheEuropeanUnion.RegulationEUNo575/2013oftheEuropean
ParliamentandoftheCouncilof26June2013.Onprudentialrequirementsforcreditinstitutions
andinvestmentfirmsandamendingRegulationEUNo648/2012.AccessedonJune15,2015.
http://eurlex.europa.eu/legalcontent/EN/TXT/?uri=CELEX:32013R0575

31


SMEFinanceForum.DataandStatistics.AccessedonApril24,2015.
http://smefinanceforum.org/322200/dataandstatistics

EstablishedMethods

Allen,LDeLong,GSaunders,AIssuesinthecreditriskmodelingofretailmarkets.Journal
ofBanking&Finance(2004)727752.AccessedonApril30,2015.www.fin.kuas.edu.tw

Altman,E.,Saunders,ACreditRiskMeasurement:DevelopmentsovertheLast20Years.
JournalofBanking&Finance(1998)17211742.AccessedonMay7,2015.

Altman,E.Financialratios,discriminantanalysis,andthepredictionofcorporatebankruptcy.
TheJournalofFinance(1968).AccessedonMay8,2008.
http://onlinelibrary.wiley.com/doi/10.1111/j.15406261.1968.tb00843.x/full

BanquedeFrance.Dossierstatiquedelasituationdesenterprisesen2013.AccessedonApril
20,2015.

BanquedeFrance.Guidedereferencedelacotation.AccessedonApril20,2015.http://eur
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0870:FIN:EN:PDF

EURLex.Listofregisteredandcertifiedcreditratingagencies.AccessedonApril23,2015.
http://eurlex.europa.eu/legalcontent/EN/TXT/?uri=OJ:JOC_2015_033_R_0004

Lin,ShuMin.SMEsCreditRiskModellingforInternalRatingBasedApproachinBanking
ImplementationofBaselIIRequirement.AccessedonApril30,2015.
https://www.era.lib.ed.ac.uk/handle/1842/4914

Mester,LorettaJ.WhatsthePointofCreditScoring?BusinessReviewoftheFederalReserve
BankofPhiladelphia(1997).AccessedonMay17,2015.
https://www.philadelphiafed.org/researchanddata/publications/business
review/1997/septemberoctober/brso97lm.pdf

MoodysAnalytics.RiskCalcPlusforSMECreditRisk.AccessedonApril23,2015.

MoodysInvestorsService.RiskCalcforPrivateCompanies:MoodysDefaultModel.
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DefinitionAndScale.pdf

AlternativeMethods

32
ORIAS
https://www.orias.fr

AssociationFinancementParticipatifFrance(AssociationofCrowdfundinginFrance),
http://financeparticipative.org

Rewardordonationbasedmarketplace:

BulbinTown,https://www.bulbintown.com

KissKissBankBank,http://www.kisskissbankbank.com

MyNewStartup,hello@mynewstartup.com

Cowfunding,http://www.cowfunding.fr

Ulule,http://fr.ulule.com

UnitedDonations,http://www.uniteddonations.eu

Loanbasedmarketplace:

Lendix
https://lendix.com

LENDOPOLIS,http://www.kisskissbankbank.com

PretPME.fr,http://pretpme.fr

Prexem(cf.PPTandreport),https://www.prexem.com

Tributile,http://www.tributile.fr/Leschiffresducrowdfunding2014enFrance,a0111.html

Equitybasedmarketplace:

ABFUNDING,http://www.abfunding.com/fr/accueil

ClubFunding,https://www.clubfunding.fr

MyWinPME,http://www.mywinpme.com

WiSEED.com,https://www.wiseed.com/fr

33


Appendix

ListofEURegisteredCreditRatingAgencies
NameofCRA CountryofResidence Status EffectiveDate
EulerHermesRatingGmbH Germany Registered 16November2010
JapanCreditRatingAgencyLtd Japan Certified 6January2011
FeriEuroRatingServicesAG Germany Registered 14April2011
BCRACreditRatingAgencyAD Bulgaria Registered 6April2011
CreditreformRatingAG Germany Registered 18May2011
ScopeRatingsAG Germany Registered 24May2011
ICAPGroupSA Greece Registered 7July2011
GBBRating Gesellschaft fr Germany Registered 28July2011
BonittsbeurteilungGmbH
ASSEKURATA Assekuranz Rating Germany Registered 18August2011
AgenturGmbH
ARCRatings,S.A. Portugal Registered 26August2011
AM Best EuropeRatings Services UK Registered 8September2011
Ltd
DBRSRatingsLimited UK Registered 31October2011
FitchFranceS.A.S. France Registered 31October2011
FitchDeutschlandGmbH Germany Registered 31October2011
FitchItaliaS.p.A. Italy Registered 31October2011
FitchPolskaS.A. Poland Registered 31October2011
FitchRatingsEspaaS.A.U. Spain Registered 31October2011
FitchRatingsLimited UK Registered 31October2011
FitchRatingsCISLimited UK Registered 31October2011
Moodys Investors Service Cyprus Cyprus Registered 31October2011
Ltd
MoodysFranceS.A.S. France Registered 31October2011
MoodysDeutschlandGmbG Germany Registered 31October2011
MoodysItaliaS.r.l. Italy Registered 31October2011
Moodys Investors Service Espaa Spain Registered 31October2011
S.A.
MoodysInvestorsServiceLtd UK Registered 31October2011
Standard & Poors Credit Market France Registered 31October2011
ServicesFranceS.A.S.
Standard & Poors Credit Market Italy Registered 31October2011
ServicesItalyS.r.l.
Standard & Poors Credit Market UK Registered 31October2011
ServicesEuropeLimited
CRIFS.p.A. Italy Registered 22December2011
CapitalIntelligence(Cyprus)Ltd Cyprus Registered 8May2012
EuropeanRatingAgency,a.s. Slovakia Registered 30July2012
AxesorSA Spain Registered 1October2012
CERVEDRatingAgencyS.p.A. Italy Registered 20December2012
KrollBondRatingAgency USA Certified 20March2013
TheEconomistIntelligenceUnitLtd UK Registered 3June2013
Dagong Europe Credit Rating Srl Italy Registered 13June2013
(DagongEurope)
SpreadResearch France Registered 1July2013
EuroRatingSp.zo.o Poland Registered 7May2014
HRRatingsdeMxico,S.A.deC.V. Mexico Certified 7November2014
Moodys Investors Service EMEA UK Registered 24November2014
Ltd
EganJonesRatingsCo.(EJR) USA Certified 12December2014

34
AlternativeFinanceQuestionnaire

Generalquestions:
Could you shortly present your company (date of creation, number of employees,
founders,etc.)?
Howdoyousituateyourcompanyonthealternativelendingmarket?(Peertopeerloan,
equitycrowdfundingplatform,etc.)
Whodoyouserve:SMEoronlymicroentrepreneurs?
Whatdiffersyourbusinessfromclassicbanking?
Howdoyouprovideyourservicestoyourclients?
Howdoyoudifferentiateyourcompanyfromyourcompetitors?Whatistheaddedvalue
ofyourcompanycomparedtothecompetitors?
Businessmodelofalternativefunding:
Couldyoudescribetheselectionprocessoffinancingaproject?
Whatareyourmaincriteriainselectingaprojectoraborrower?
Howmanydocumentsdoyouaskforandofwhatkind?
Howdoyouevaluatetherisksofthecompanyyoulendmoneyto?
Howdoyou,generally,evaluaterisksandtheircost?
Whatparametersdoyouusetoassessthecostofrisks?
How much time does whole process of credit application (from credit application to
issuingtheloan)take?
Regulatoryaspect:
Doyouhaveacertification/licensefromtheregulatororanyotherauthoritytoexercise
youractivities?
Areyouregisteredasafinancialorganization?
Doyouhaveasmuchconstrainsplacedtheregulatorasclassicbankshave?
Couldyoudescribethegenerallegalframework,ifany,regulatesthealternativefunding
marketinyourcountry?

Risksandscoringmodel
Whatkindsofscoringmodeldoyouapplytoevaluatetheriskofbankruptcy?
Whichmodeldoyouusetoanalyzethedata?
Have you bought a scoring program from a provider or have you developed your own
scoringmodel?
Ifyes,howdidyoupersonalizeyourscoringmodel?
Why have you developed your own scoring model? How does it defer from those
developedbyprovidersorlargebanks?
Accordingtoyou,isitmoreefficientandmoreadaptedtoSMEs?
Howlongdoesittaketoscoreaclient?
WhatarethemainqualitativeandquantitativecriteriayouusetoscoreSMEs?
DoyouhavedifferentcriteriafordifferentkindsofSMEsandindustry?

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AlternativeLenders:ListofContacts

Frenchmarketplaces:

AssociationFinancementParticipatifFrance(AssociationofCrowdfundinginFrance)
http://financeparticipative.org

Rewardordonationbasedmarketplace:

Bulb in Town est la plateforme de financement participatif de proximit, ddie

particulirement aux commerants, artisans, associations et muses de quartier et permettant
dimpliquer les habitants dans le financement de projets prs de chez eux et dimpact
local.Laccompagnementdesporteursdeprojetsestunedesclsdusuccsdescampagnessur
BulbinTown(Tauxdesuccssur20132014:78%).
Sur Bulb in Town, les projets sont tangibles et en bas chez soi afin que les investisseurs
voientetprofitentrapidementdursultatdeleurscontributionsetqueleliensocialetlaviede
quartierreviennentaucentredesproccupations.
https://www.bulbintown.com

KissKissBankBank,un des leaders mondiaux du crowdfunding ddi la crativit et

linnovation.Ralisateurs,journalistes,musiciens,designers,bidouilleurs,artistes,photographes,
humanistes, explorateurs, navigateurs, athltes, agriculteurs tout le monde peut dposer un
projet sur KissKissBankBank et ainsi solliciter le soutien du public.Notre mission est de
favoriserlacrationindpendanteinternationaleenpermettantauxcrateursdeconserver100%
delapropritintellectuelledeleursprojets.Lanaissancedecesprojetsetleslienssociauxqui
endcoulentfontdeKissKissBankBankunemachinecrerdeloptimismeetdelaconfiance
ensoi.
CharlotteRichard(charlotte.richard@kisskissbankbank.com).
http://www.kisskissbankbank.com

MyNewStartupestuneplateformedefinancementparticipatifddieauxPMEproposantun
modedefinancementhybride(Prcommandeet/ouCapital)ainsiquunaccompagnementsur
mesure.SoutenezlconomierelleendonnantdusensvotrepargnesurMyNewStartup.

hello@mynewstartup.com+33(0)984157586
MyNewStartup
21ruedeCrucy44000NantesFrance

Cowfunding:rcolterdesfondsetbienplus!CestlepivotdenotrebaselineCrez,Partagez,
Financez.Sanspartage,ilnyariendepossible.Cestpourquoilorsquevoustesunsoutien,
vous ntes pas obligatoirement un soutien financier (CowFunder). Vous pouvez galement
partager la page dun projet que vous estimez digne dintrt. En tant que crateur, vous avez
aussiaccsnosoutilsdepartagesurlesrseauxsociauxafindedonnerlavisibilitncessaire
votreprojet.

36
Ulule

Premier site de crowdfunding en Europe,Ululepermet le financement de projets cratifs,

innovantsousolidairesgrcelaparticipationdesinternautes.Lesporteursdeprojetdtaillent
unbudgetatteindre,uneduredecollectefixeetdescontrepartiesexclusivesquilsoffrenten
changedusoutiendesinternautes(ex.:unDVDpouruncourtmtragefinanc,desinvitations
auxprojectionsousurletournage,unerencontreaveclquipe,etc.).Silobjectifestatteint,le
porteur du projet reoit les fonds, ralise son projet et rcompense les soutiens grce aux
contreparties. Si lobjectif nest pas atteint, les internautes ayant financ le projet sont
remboursssansfrais.

http://fr.ulule.com

United Donationsfusionne les modles de labonnement ONG (collecte de dons ponctuels ou

mensuels) et du financement participatif (ou crowdfunding) en permettant une leve de dons
rcurrents en ligne pour des projets solidaires en France et linternational. Depuis son
lancementenoctobre2012,lesprojetssurlaplateformecollectentenmoyenne4792,avecun
tauxdefidlisationdesdonateursde97%.
http://www.uniteddonations.eu

Loanbasedmarketplace:

Lendix est une plateforme de prts aux PME qui permet aux investisseurs particuliers et
professionnelsd_employerdemanireutileetrentableleurpargneenfacilitantlefinancement
delconomierelleetauxTPE&PMEdetrouverdenouvellessourcesdefinancementsimples
etefficacesaudeldesbanques.

Contact:
MatthieudeFrminville(Directeur)
contact@lendix.com
94,ruedelaVictoire
75009Paris
+33(0)182832800

LENDOPOLIS, la plateforme de prt rmunr ddie aux TPE / PME franaises par les
crateursdeKissKissBankBank.

Contact:
CharlotteRichard
charlotte.richard@lendopolis.com
+33972324942

PretPME.frestlaplateformepourlaccompagnementdesPMEdanslefinancementdeleur
projet par le prt et la possibilit de prter directement et de faon transparente pour les
pargnants. Conu par des vtrans du monde de la finance participative, initiateur du

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mouvement en France, PretPME.fr repose galement sur des annes dexprience bancaire
permettantdatteindrelesplushautsstandardsdetraitementsfinanciers.Aucoeurdelarforme
sur la finance participative, les fondateurs de PretPME.fr offrent aujourdhui une solution
compltementconformeaunouveaucadre,sanspareilpourrconcilierlebesoindeprotgerson
pargneetdassurerunesainecroissancedecelleci.

contact@pretpme.fr

Prexem (cf. PPT and report) est la place de march permettant aux entreprises franaises
(TPE/PME, artisans, etc.) soigneusement slectionnes de financer leurs projets en quelques
clics.Simple,rapide,transparentetsanscontraintepourdesprtsrmunrsde10000500000
euros.Cesprtsrendementsattractifssontfinancsparlesparticuliersquireprennentainsile
contrledeleurpargne.Notreambitionestdemettretechnologieetinnovationaucurdela
rvolutionducrditenFrance.AveclaplateformePrexem,reconnectonslpargnecitoyenneet
lesbesoinsdefinancementdelconomierelle,dansunespritcollaboratif.

PREXEMestinscritauregistredel'ORIASentantqu'intermdiaireenfinancementparticipatif
(IFP)

Contact:
RodolpheKrauss
MarketingManager
0624065830
contact@prexem.com
rodolphe.krauss@prexem.com

Tributileest une plateforme ddie au prt rmunr aux entreprises par le grand public. Les
particulierstrouvent une nouvelle forme de placement rmunrateur, les entreprises accdent
bienplusquedelargent.Projetdentrepreneursauservicedesentrepreneurs,Tributilemeten
valeurlesbelleshistoiresdentreprisesetdmocratiselafinancepourlesparticuliers.

http://www.tributile.fr/Leschiffresducrowdfunding2014enFrance,a0111.html

Equitybasedmarketplace:

Plateformesdinvestissement

ABFUNDINGestlapremireplateformergionalelyonnaisedequitycrowdfundingfondepar
unBusinessAngel.Miseenlignedbutoctobre2014,ABFUNDINGarussisapremireleve
defondsde+de500000euros.
Le concept AB FUNDING est de permettre des entreprises de lever des fonds ncessaires
leur dveloppement. Segment: 100000 1 million deuros. Offrir des investisseurs des
opportunits de souscriptions dactions directement au capital des socits choisies.
Accompagner lEntrepreneur jusqu la cession des actions des Investisseurs. Adopter une
politiquedefraisauplusjuste.

38
Contact:
ABFUNDING
78,Bddu11novembre1918
69100Villeurbanne
Tl:0482531302

ClubFunding est une plateforme de financement participatif qui propose aux investisseurs,
particuliers et institutionnels, des obligations simples taux fixe mises par des PME
franaises.ClubFunding accompagne entreprises et investisseurs durant toutes les tapes du
financement : analyse crdit, montage de lmission, collecte des souscriptions, gestion des
paiementsetremboursements,suividelarelationmetteurinvestisseursClubFundingapour
actionnaire de rfrence Profina, groupe indpendant et taille humaine, fort de 21 ans
dexprience, 6.000 entreprises emprunteuses, 4.000 investisseurs patrimoniaux et plus de 2
milliardsdeurosfinancs.

Contact:
contact@clubfunding.fr
Tl:0177583858

My Win PME est une plateforme de financement participatif de proximit ddie aux
entreprisesquiontdpassltapedestartup,quisontdunematuritavreouquisetrouvent
enphasedetransmission.Lesentreprisesprsentessonttoutesaccompagnespardessocits
spcialisesdanslalevedefondsoupardesstructuresdaccompagnementrgionalesagres
(CCI, ppinires, acclrateurs, rseaux conomiques..).Cette slection de partenaires, en
proximit des entreprises, permet de suivre de faon plus rapproche la mise en uvre des
projets de dveloppement et ainsi doptimiser la cration de valeur. Les investisseurs peuvent
galement participer au financement de locaux professionnels sous forme de placement
immobilier taux fixe (actuellement rmunr 8%).Le financement dentreprises ou
doprationsimmobiliresestaccessiblepartirde1000parmembre.

Contact:
MyWinPME
52closdesEntreprise
34970MaurinLattes(Montpellier)
France
Tel:+33(0)411932295
Fax:+33(0)467270391
contact@mywinpme.com

WiSEED.com(capitalventuremodel)estlaplateformedecrowdfundingpionniremondialeet
leader en France sur un modle de prise de participation au capital.WiSEED dveloppe une
vision entrepreneuriale du financement. Elle est lorigine de la rforme rglementaire qui
dmocratise la profession. WiSEED propose un nouvel horizon de placement pour des
investisseursprivsetsouhaiteimposerunhautniveaudeprofessionnalismepourlesacteursde
cetteindustrienaissante.WiSEEDadjfinancplusde40entreprisespourunmontanttotalde

39


prsde10millionsdeurosetadjralisunexitavecunTRIde45%.

Contact:
Tel.05.31.61.62.63

Overseeingbody:

ORIASestuneassociation,soustutelledelaDirectionduTrsor,quiatcreen2007pour
homologuer les intermdiaires en assurance, conformment une directive de l'Union
Europennedatantde2002
https://www.orias.fr

40