Fighting coronavirus: new research to tackle challenges faced by Small and Medium-sized Enterprises (SMEs)
UK study will evaluate pandemic risk and credit risk exposure in the wake of the COVID-19 crisis for SMEs
A new, UK-wide study led by the University of Nottingham in collaboration with the Bank of England and the Confederation of British Industry (CBI) will address the risk exposure and examine the resilience of SMEs in the wake of COVID-19. The project will be led by Professor Meryem Duygun of Nottingham University Business School with support from co-investigators from the Universities of Lancaster, Exeter and Nottingham.
A key pillar of the UK economy
More than 99% of the approximately six million businesses in the UK are SMEs. Jointly, they employ more than 16 million workers. As the COVID-19 crisis unfolds, SMEs are faced with unprecedented challenges, including declining revenues, inability to retain employees, postponement of investments and loan repayment difficulties.
This 18-month study, funded by the Economic and Social Research Council (ESRC), as part of UK Research and Innovation’s (UKRI) rapid response to COVID-19, has two aims:
- to construct a measure of economic risk for pandemic extreme events
- to develop a new credit risk assessment protocol to evaluate SME borrower profiles (or score cards).
Building on the integration of economic and non-economic data, the project will make use of Artificial Intelligence (AI) to widen the range of firms that can be rated methodologically and that can, therefore, access different funding channels. In doing so, it will address the problem of structural credit constraints for SMEs when exposed to extreme pressures. A major part of the project will be devoted to the implementation of Machine Learning and Deep Learning to draw information from varied sources of financial, sociodemographic, and geographical data.
Commenting on the project, Professor Meryem Duygun said:
The pandemic has caused significant economic disruption at both national and international level, but it is also providing an ideal opportunity for reform to improve the fundamentals of the UK’s economic structure. Our study will contribute to enhancing SMEs’ resilience and boost their (extreme event) risk management and prevention skills. To achieve this, we will exploit a range of novel approaches specifically tailored for UK SMEs. By accurately assessing the overall pandemic risk and credit risk exposure of SMEs, we hope that our study will assist policy makers to design adequate and timely measures. Equally, the banking sector may utilise our study findings to improve their design of score cards during pandemic events.
Dr Eddie Gerba (Research Manager, Bank of England) said:
This is a fantastic opportunity to deepen our understanding of the challenges and risks that SMEs face in rare and extreme events such as COVID-19, and better equip them for resilience.
Flora Hamilton (Director, Financial Services, CBI) said:
This study will provide some useful tools to assess the credit risk exposure of SMEs in the wake of the COVID-19 pandemic. With the winter months likely to disrupt demand and cash flow in many sectors of the economy, this research will be valuable for informing future policy decisions and will help improve the resilience of many SMEs.
For more information about the porject, contact Professor Meryem Duygun, Aviva Chair in Risk and Insurance, Nottingham University Business School
Posted on Wednesday 18th November 2020