Banks need to get their acts together when it comes to SME lending — not because it’s the right thing to do for the economy (it is), but because it’s the right thing to do for their shareholders.

An AUC study we noted this morning said the solution lies (to varying degrees) in NBFS players, in teaching bank staff how to allocate credit, and in looking at the central bank-led programs that are pushing SME lending.

But that’s a mis-diagnosis of the problem, which stems not from a lack of CBE leadership or bad loanmaking skills on the part of bankers. Rather, the problem is that banks are run by people — and people naturally choose the path of least resistance.

The Central Bank of Egypt has (largely) done its part, mandating that loans to SMEs make up a set minium at every institution and providing banks with subsidized funding for onlending. Yes, non-bank financial services — factoring, leasing, merchant finance and more — could well fill the gap, as the authors of the AUC study suggested. But if banks allow it to happen, they’ll be missing out on a generational chance in our very under-served market.

SMEs are the mainstream of economies the world over — they’re also expensive to reach and expensive to bank. Globally, the pattern holds: Banks in EM chase small businesses only once they’ve cornered the market on easier, more predictable returns loaning to big business (and to governments). And they meet success only when they learn to speak the language of SMEs instead of shoe-horning them into operations originally designed to serve either large corporate clients or individual customers.