Thursday 28 Mar 2024
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GEORGE TOWN: Small- and medium-sized enterprises (SMEs) in developing countries in Asia contribute 42% of economic output, although they make up an average 96% of registered companies and employ 62% of the labour force, the Asian Development Bank (ADB) revealed in a report.

Limited access to bank credit is also a persistent problem in Asia and the Pacific where lending has declined due to the global financial crisis to about 18.7% of total loan banks received in 2014, it said.

ADB’s sustainable development and climate change department senior adviser Noritaka Akamatsu said in a statement that SMEs need finance to grow into dynamic, internationally competitive companies.

“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,” he said.

In a report on “Asia SME Finance Monitor 2014” conducted by Manila-based ADB on 20 countries in developing Asia, it was noted that finance was key to strong sustainable growth in Asia as the world recovers from the economic slowdown.

“Regional integration and trade liberalisation mean firms need to shift from being domestically focused to being more globally targeted. This also offers opportunities for smaller firms to explore offshore markets while exposing them to increased competition,” the report said.

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,” the report said in relation to limited access to bank credits.

As such, it noted that 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 to 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.

On the other hand, non-bank 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, with its lending only at one tenth of total outstanding bank loans in the region.

Governments need to put in place a comprehensive policy framework to help non-bank financial institutions expand their SME financing options, it said.

“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 added.

Established in 1966 and owned by 67 members (48 from the region), ADB helps to reduce poverty in the region through inclusive economic growth, environmentally sustainable growth, and regional integration.

In 2014, ADB’s assistance totalled US$22.9 billion, including co-financing of US$9.2 billion.

 

This article first appeared in digitaledge Daily, on September 3, 2015.

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