SMEs need funds to become more competitive: ADB

Asia's Small and Medium Enterprises (SMEs) need finance to help them grow into dynamic, internationally competitive companies, says a new report from the Asian Development Bank (ADB).
The Asia SME Finance Monitor 2014, which assesses 20 countries in developing Asia, noted that SMEs make up an average of 96.0 per cent of all registered firms and employ 62.0 per cent of the labour force. However, they contribute only 42.0 per cent of economic output.
The report suggests that the governments in the region need to help SMEs become more competitive and able to participate in global value chains. This includes governments making it easier for SMEs to access new financing, such as supply chain finance.
Limited access to bank credit is a persistent problem in Asia and the Pacific, the report noted while it also pointed out that lending to SMEs declined over the course of the global financial crisis and in 2014, the SMEs received only 18.7 per cent of total bank loans, a BSS report said quoting the report.
"Asia has millions of SMEs, but few of them are able to grow to the point where they can innovate or be part of the global supply chain. To do this, they need more growth capital and opportunities to access various financing channels," said Noritaka Akamatsu, Senior Advisor in ADB's Sustainable Development and Climate Change Department, which produced the report.
Several countries made progress in tackling this issue, the report said and cited the examples of Papua New Guinea and the Solomon Islands where companies could borrow using movable assets as collateral; Indonesia and the Philippines where governments introduced mandatory bank lending quotas to SMEs and Kazakhstan and Mongolia where loan refinancing schemes are encouraged.
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.
It said that the nonbank finance industry, which typically includes finance companies, factoring and leasing firms, for example - in Asia and the Pacific is still too small to meet the financing needs of SMEs, with its lending only one tenth of total outstanding bank loans in the region.
"Governments need to put in place a comprehensive policy framework to help nonbank financial institutions expand their SME financing options. Ongoing efforts to open up the equity markets to SMEs would also help provide SMEs with the long-term financing they need to mature", the report said.
-SS