Asian Development Bank Backs Financial Access for SMEs

By Sunny Lewis

MANILA, Philippines, September 11, 2015 (Maximpact News) – The backbone of Asia’s economies are small and medium-sized enterprises (SMEs), but these companies need better access to finance to grow and generate new jobs for the region, says a new Asian Development Bank report.

The Asia SME Finance Monitor 2014, which assesses 20 countries in developing Asia, finds that SMEs make up an average of 96% of all registered firms and employ 62% of the labor force. Yet they contribute only 42% of the region’s economic output.

“Most of Asia’s smaller firms are faced with difficulties in obtaining finance,” said ADB senior adviser for sustainable development Noritaka Akamatsu, at the September 2 introduction of the “Asia SME Finance Monitor.”

“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,” said Akamatsu. “To do this, they need more growth capital and opportunities to access various financing channels.”

The bank takes the position that government in the region need to help SMEs become more competitive and able to participate in global value chains.

Limited access to bank credit is a persistent problem in Asia and the Pacific. Lending to SMEs has declined over the course of the global financial crisis and in 2014; they received only 18.7% of total bank loans.

Several countries have made progress tackling this crucial issue.

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.

Still, 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 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.

The bank says governments need to put in place comprehensive policy frameworks 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.

On Wednesday, the bank and the Washington, DC-based global research and development organization World Resources Institute (WRI) announced a new knowledge partnership to support Asian economies toward inclusive and environmentally sustainable growth

The partnership is rooted in common goals and complementary strengths on climate change, energy, cities, water, forests, food, governance and finance.

“We see this partnership combining the intellectual, technical and financial resources of ADB with WRI’s expertise from its global network to jointly deliver solutions to sustainability challenges on the ground,” said Carmela Locsin, director general of ADB’s Sustainable Development and Climate Change Department.

Dr. Andrew Steer, WRI president and chief executive, is enthusiastic about the new endeavor. “There is no doubt that sustainability challenges will not be solved globally unless they are solved in Asia,” he said. “WRI is committed to closely with ADB and other partners scale up solutions in Asia, and to bring these learning’s to the rest of the world.”

PHOTO: Market in Manila, Philippines (Photo by Wayne S. Grazio creative commons license via Flickr)

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