Asian small firms need more non-bank funds to grow: ADB

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A new ADB report shows small- and medium-sized enterprises have difficulty accessing loans and non-bank funding that would help them expand.

Small- and medium-sized enterprises (SMEs) are the backbone of Asia’s economies, but they need better access to finance to grow and generate badly needed new jobs for the region, says a new ADB report.
“Most of Asia’s smaller firms are faced with difficulties in obtaining finance,” said Noritaka Akamatsu, deputy head of Asian Development Bank’s Office of Regional Economic Integration, which produced the inaugural edition of Asia SME Finance Monitor. “SMEs need to be able to tap a wider range of non-bank financing options in addition to bank loans, including capital markets if they are to realize their potential.”
SMEs – defined differently in different countries but generally with a small workforce or low assets – make up 98 percent of all businesses and provide jobs for 66 percent of the labor force in Asia. However, they represent only 38 percent of the region’s gross domestic product (GDP), indicating that governments can boost economic growth by developing SMEs.
Small firms have trouble getting the finance they need to grow. They lose out to larger companies where bank loans are concerned, particularly with banks cutting back their lending to SMEs in the wake of the 2008-2009 global financial crisis as they avoided risk and sought financial stability.
Although many governments have developed comprehensive policy frameworks to promote SME growth, most measures focus on helping SMEs get loans from banks, such as public credit guarantee schemes in Indonesia and Thailand, secured transaction reforms in the Pacific region, refinancing schemes in Bangladesh and Malaysia, and mandatory lending in the Philippines.
The report highlights the example of China, where SMEs contribute 50 percent of tax revenues, 60 percent of GDP, and 80 percent of urban jobs, and where alternative sources of funding are provided via SME equity markets on the Shenzhen Stock Exchange, SME bond instruments, and microcredit firms.
However, given that China defines SMEs differently to other countries, further study is needed on the link between the wider availability of finance and SME growth.
More needs to be done across the region to incorporate non-bank financing options into national policies and nurture other options, such as increased use of asset-based finance and capital market instruments, the report said.
According to ADB, Vietnam is home to around 333,800 small and medium-sized enterprises, accounting for 98 percent of total enterprises. The SME sector employed 5.1 million people, or 47 percent of total employees in 2012.
Apart from the banking system, Vietnam has 30 non-bank financial institutions and two stock exchanges. In addition, there are several public funds to support SME sector development in Vietnam. For instance, provincial governments have mobilized development investment funds and industrial and agricultural promotion funds to expand SME business, upgrade business equipment and machinery, and train labor forces.

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