Asia�s SMEs need growth capital to be more competitive: ADB
STAFF REPORTER
Asias small and medium-sized enterprises (SMEs) need financial support to help them grow into dynamic and internationally competitive companies. This is the key for strong and sustainable growth in Asia even as the world recovers from the recent global economic slowdown, says a new report released by the Asian Development Bank (ADB).
Asia has millions of SMEs, but only a few are able to grow to a point where they can innovate or become part of the global supply chain. To do this, they need more growth capital and opportunities besides access to various financial channels, said Noritaka Akamatsu, senior advisor at ADBs Sustainable Development and Climate Change Department, which produced the report.
The Asia SME Finance Monitor 2014, which assesses 20 countries in developing Asia, noted that SMEs make up an average of 96 percent of all registered firms and employ 62 percent of the labour force. However, they contribute only 42 percent to the economic output.
Regional integration and trade liberalisation means these firms need to shift their focus from domestic markets to global markets. This will also offer opportunities to smaller firms to explore offshore markets, while exposing them to increased competition.
Governments in the region need to help SMEs become more competitive so that they can participate in the global value chains. This includes governments making it easier for SMEs to access new financing options like supply chain finance.
Limited access to bank credit is a persistent problem in Asia and the Pacific. Lending to SMEs has declined due to the global financial crisis, and in 2014 they received only 18.7 percent of total bank loans.
Several countries have made progress tackling this. Papua New Guinea and the Solomon Islands have made it easier for companies to borrow using movable assets as collateral, Indonesia and the Philippines have introduced mandatory bank lending quotas for SMEs and Kazakhstan and Mongolia have encouraged loan refinancing schemes. However, the region needs to further develop credit bureaus, collateral registries and credit guarantees to expand financial outreach, particularly in low-income countries, the report said.
The non-banking finance industry, which typically includes finance companies, factoring and leasing firms in Asia and the Pacific, is still too small to meet the financing needs of SMEs. Its lending is only one tenth of the total outstanding bank loans in the region. Governments need to put in place a comprehensive policy framework to help non-banking financial institutions expand their SME financing options. The ongoing effort to open up equity markets to SMEs would also help them with long-term financing that they need in order to mature.
The ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, its owned by 67 members, including 48 members from the region. In 2014, ADB assistance totalled $22.9 billion, including co-financing amount of $9.2 billion.
