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Financing SMEs in Asia and the
Pacific: Trends and Challenges
Workshop on International Trade Finance, Logistics and Business Development
Session 7 (1)28 November 2015, Yangon, Myanmar
Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Sustainable Development and Climate Change Department
Asian Development Bank
This presentation was prepared under the author’s responsibility. The views expressed here do not necessarily reflect
the views or policies of ADB, its Board of Directors, or the governments they represent. ADB does not guarantee the
accuracy of the data included in this presentation and accepts no responsibility for any consequences of their use.
Agenda
I. SMEs in ADB Economies
II. Access to Bank Credit
III. Access to NBFIs
IV. SME Capital Markets
V. Access to Finance by Development Stage
VI. SME Finance Policies
VII. Challenges
VIII. Policy Implications
2
SMEs in ADB Economies
Notes: Data in 2014 for CAM, KAZ [SMEs to total and employees], and MYA [SMEs to total]; data in 2013 for KYR, MON, IND, INO, SRI, THA, PRC [SMEs to total], MAL [employees and GDP contribution], and KAZ [GDP contribution]; data in 2012 for BAN, KOR, VIE, PHI [SMEs to total and employees], and PRC [exports]; data in 2011 for PRC [employees]; data in 2010 for MAL [SMEs to total]; data in 2006 for PHI [GDP contribution].
Source: Compilation from the ADB Asia SME Finance Monitor 2014.
3
� Recent global economic slowdown requires a new growth model for Asia, where SMEs play a key role in boosting national productivity.
0
25
50
75
100
CAM
SRI
VIE
LAO
BAN
KYR
PHI
KAZ
MAL
INO
THA
PRC
KOR
IND
MON
MYA
SMEs to total (%)
SME employees to total (%)
SME Contribution to GDP (%)
SME exports to total (%)
KAZ
PRC
KOR
MON
BAN
INDSRI
INO
MAL
PHI
THA
FIJ
PNG
SOL
0
10
20
30
40
50
0 10 20 30 40 50
SM
E L
oans to T
ota
l Loans (
%)
SME Loans to GDP (%)
� Limited access to bank credit decelerates growth pace of SMEs.
Access to Bank Credit
4
SME Loans, 2014
Source: ADB Asia SME Finance Monitor 2014.
Access to Bank Credit
5
� Lending to SMEs has declined over the course of the GFC and in 2014.
SME received only 18.7% of total bank loans. SME NPLs ranged 2%-18%.
SME Bank Loans to Total Loans (%)
* March/2014 (IND), June/2014 (FIJ [Q2] and KOR), September/2014 (KAZ, PNG, PHI, and SOL), December/2014 (BAN, PRC, INO, MAL, MON, and THA).Notes: For PRC, data based on SME loans outstanding until 2012; while after 2013, based on micro and small enterprise (MSE) loans outstanding. For PHI, data based on total funds set aside for MSMEs (mandatory lending; 10%).Source: Asia SME Finance Monitor 2014.
KAZ
PRCKOR
MON
BAN
IND SRI
INO
MAL
PHI
THA
FIJ PNG
SOL
0
10
20
30
40
50
2007 2008 2009 2010 2011 2012 2013 2014*
(%)
KOR
KOR
BAN
BAN
INO
INO
THATHA
PNG
0.1
1.0
10.0
100.0
2007 2008 2009 2010 2011 2012 2013 2014*
(%) SME NPLs (%)
— SME NPLs to SME loans, - - - SME NPLs to total loans.* June/2014 (KOR), September/2014 (PNG [Q3]), December/2014 (BAN, INO, and THA).Notes: NPLs based on the national loan asset classification. For BAN, the ratio of borrowers with SME NPLs to total SME borrowers. For KOR, the ratio of SME classified loans to total SME loans.Source: Asia SME Finance Monitor 2014.
� Credit guarantee as a tool to improve SME access to finance but limited outreach with a problem on business sustainability.
1.0
5.3
1.90.0
36.7
7.4
26.7
1.7
8.9
0.1
10.9
1.5
0
5
10
15
20
25
30
35
40
0
1
2
3
4
5
6
7
8
CG
TM
SE
(IN
D)*
Ask
rin
do
(IN
O)*
Jam
kri
nd
o (
INO
)
PK
PI
(IN
O)
JFC
/NF
CG
C (
JPN
)
KO
DIT
(K
OR
)
KO
RE
G [
CG
Fs]
(K
OR
)
KO
TE
C (
KO
R)
CG
CM
B (
MA
L)
DC
GC
(N
EP
)*
SB
C (
PH
I)
CB
SL (
SR
I)
[Ta
ipe
i,C
hin
a]
SM
EG
TC
G (
TH
A)
SB
A (
US
A)
CfE
L (
UK
G)
Bu
rgsc
ha
ftsb
an
ke
n
(GE
R)
OSE
O g
ara
nti
e
reg
ion
s (F
RA
)
CO
NF
IDI
(IT
A)
Outstanding Guaranteed Liabilities (% of GDP) [left]
SME Access to Guarantee (% of total SMEs) [right]
(%) (%)
6
Source: ACSIC (2012), The 25th Anniversary Publication of ACSIC – The 25-year History of ACSIC
Access to Bank Credit
SME Access to Credit Guarantees
0.0 0.5 1.0 1.5 2.0 2.5 3.0
JFC (JPN)
[Taipei,China] SMEG
SBC (PHI)
NFCGC (JPN)
KODIT (KOR)
CGCMB (MAL)
KOTEC (KOR)
KOREG [CGFs] (KOR)
CBSL (SRI)
Askrindo (INO)
CGTMSE (IND)
TCG (THA)
DCGC (NEP)
Jamkrindo (INO)
Source: ACSIC (2012), The 25th Anniversary Publication of ACSIC – The 25-year History of ACSIC
Note: Net profit & loss = (Recovery + Fee income)/Payment under guarantee
Net Profit & Loss of Credit Guarantee Institutions
Access to Bank Credit
7
Access to Bank Credit
8
� Basel III may negatively affect bank lending attitude to SMEs.
� Basel III requires banks to have tighter risk management as well as greater capital and liquidity.
� Resulting asset preference and deleveraging of banks could limit the availability of funding for SMEs.
- Capital requirements: Banks may encourage finance to large firms with good ratings (investment grade) rather than unrated SMEs to reduce total high-risk assets.
- Liquidity framework: Banks may be willing to hold “easy-to-sell assets” or high quality liquid assets, resulting in constraining the provision of long-term credit.
- Leverage ratio framework: Controlled leverage of banks including off-balance transaction may limit financing options for SMEs, e.g., trade finance availability.
KYR
TAJ
PRC
MON
BAN
CAM
INOFIJ
SOL
0
10
20
30
40
50
60
70
80
90
100
0 2 4 6 8 10 12
NB
FI F
inancin
g to B
ank L
oan
s (
%)
NBFI Financing to GDP (%)
LAO, IND,
and MAL
� The nonbank finance industry is small in scale. 11.5% of bank loans.
Access to NBFIs
9
NBFI Financing, 2014
Source: ADB Asia SME Finance Monitor 2014.
Access to NBFIs
10
� The nonbank finance industry is influenced by bank performance.
NBFI financing accounted for 3.1% of GDP. NPF stood at 2.7%
NBFI Financing to GDP (%)
* March/2014 (MYA), April/2014 (LAO), June/2014 (BAN and FIJ [Q2]), September/2014 (CAM and SOL), November 2014 (KYR), December/2014 (INO and MON). Notes: Microfinance institution (MFI) loans disbursed (KYR, IND, and TAJ), MFI loans outstanding (BAN [NGO-MFIs], CAM, PRC, LAO, and MYA), NBFI financing (FIJ, INO, MAL, MON, and SOL). Source: Asia SME Finance Monitor 2014.
NBFI Nonperforming Financing (%)
*end of year data except for KYR (November 2014).Notes: Ratio of nonperformig financing (NPF) to total financing by NBFIs including MFIs, based on the national loan asset classification. Unrecovery ratio of loans (BAN). Based on doubtful plus bad debts (INO). Source: Asia SME Finance Monitor 2014.
KYR
TAJ
PRC MON
BAN
CAM
INO
MAL
FIJ
SOL
0
2
4
6
8
10
12
2007 2008 2009 2010 2011 2012 2013 2014*
(%)
LAO, IND,
and MYA
KYR
MON
BAN
CAM
INO
0.0
2.0
4.0
6.0
8.0
10.0
2007 2008 2009 2010 2011 2012 2013 2014*
(%)
11
GDP = gross domestic product; SME = small and medium-sized enterprise. *Data as of 31 Oct for KOSDAQ, 28 Nov for ACE, and end-2014 for others.Note: Emerging Asia comprises the People’s Republic of China; Hong Kong, China; the Republic of Korea; Malaysia, Singapore, and Thailand.Source: Author’s calculation based on data from respective stock exchange websites and the ADB Asia SME Finance Monitor 2014 (provisional data).
SME Capital Markets - Equity
SME Board/PRC
ChiNext/PRC
GEM/HKG
KOSDAQ/KOR
ACE/MAL
CATALIST/SIN
mai/THA
0.0
2.0
4.0
6.0
8.0
10.0
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
% of GDP
SME Board/PRC
ChiNext/PRC
GEM/HKG
KOSDAQ/KOR
ACE/MALCATALIST/SIN
mai/THA
0
200
400
600
800
1,000
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
*
Number
� Although still in the trial stages, positive performances on SME equity markets and government reform efforts have been seen in Asia
Market Capitalization (% of GDP) Number of Listed Companies
12
China, People’s Rep. of Korea, Rep. of
SME Capital Markets - Bonds
� A new movement of creating an SME bond market.
0.00
0.04
0.08
0.12
0.16
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2009 2010 2011 2012 2013 2014
SME Joint Bond SME Collective Note SME bonds to total (%)
(CNY bil.) (%)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0
0.5
1.0
1.5
2.0
2.5
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
*
SME bond issuance SME bonds to total (%)
(W tril.) (%)
* Data as of 31 Oct 2014.Source: Author’s compilation from the ADB Asia SME Finance Monitor 2014 (provisional data).
13
Access to Finance by Development Stage� Diversified SME financing tools can push up economic development.
TAJ
BAN
BAN
CAM
MYA MYA -
2
4
6
8
10
12
SME bank loans to GDP
(%)
Nonbank financing to
GDP (%)
SMEequity market -
capitalization to GDP (%)
(%)
KYR
MON
IND
IND IND
SRI
SRI SRI
INO
INO
INO
LAO
PHI
PHIPHI
VIEPNGPNG
SOL
SOL
-
1
2
3
4
5
6
7
8
9
10
SME bank loans to GDP
(%)
Nonbank financing to
GDP (%)
SME equity market -
capitalization to GDP (%)
(%)
PRC
PRC
PRC
KAZ
MAL
MAL MAL
THA
THA
FIJ
FIJ
KOR
KOR
KOR
-
5
10
15
20
25
30
35
40
SME bank loans to GDP
(%)
Nonbank financing to
GDP (%)
SME equity market -
capitalization to GDP (%)
(%)
Low-income Economies Lower-middle-income Economies
Upper-middle-income & High-income Economies
Notes: Data in 2013. Nonbank financing includes financing by microfinance institutions, finance companies, credit unions, leasing, factoring, and venture capital investments. SME equity markets include SME exchanges in BSE & NSE (IND), Diri Savi/CSE (SRI), IDX (INO [10 SMEs listed]), SME Board/PSE (PHI), UPCoM (VIE), SME Board & ChiNext/SZSE (PRC), ACE (MAL), mai (THA), and KOSDAQ/KRX (KOR). Country classification refers to the World Bank classification for FY2015.Source: Author’s calculation based on data extracted from the ADB Asia SME Finance Monitor 2014.
SME Finance Policies
14
� A balanced approach is required to design extensive policy measures for improving SME access to finance and for safeguarding their financial stability.
National SME Finance Policies in Selected Asian Countries
* Funded by private and public sectors. ** TReDS in India: Trade Receivables Discounting System for facilitating trade receivable finance for MSMEs, proposed by the central bank. *** Mandatory creation of microfinance units in banks.Source: ADB Asia SME Finance Monitor 2014.
Public Sector
Refinancing
facility to
banks
Public credit
guarantee
scheme
Mandatory
lending to
MSMEs
Interest rate
subsidy
Public credit
bureau
Secured
transaction
law
Direct
lending/
soft loans
Refinancing
facility to
leasing firms
Refinancing
facility to
factoring
firms
MFI
development
program
NBFI industry
development
(except MFIs)
Equity market
development
for SMEs
Bond market
development
for SMEs
Venture
capital
development
for SMEs
Tax incentive
for SME issuers
and/or
investors
TAJ √ √ √
BAN √ √ √ √ √ √
CAM √ √ √ (pawn business)
MYA √
KYR √ √ √ √
MON √ √ √ √ √
IND √ √ √ √* √ √ (TReDS)** √ √
SRI √ √ √ √ √
INO √ √ √ √ √ √
LAO √ √
PHI √ √ √ √ √ √ √ √
VIE √ √ √ √
PNG √ √ √ √ √
SOL √ √ √ √ √ (credit unions)
PRC √ √ √ √ √ √ √ √ √ √
KAZ √ √ √ √ √
MAL √ √ √ √* √ √ √ √
THA √ √* √ (draft) √ √ √ √
FIJ √ √ √*** √ √ √ √
High-income
economiesKOR √ √ √ √ √ √
Upper-middle-
income
economies
Capital MarketsBanking Sector Nonbank Sector
Low-income
economies
Lower-middle-
income
economies
� Financial infrastructurei. Credit data infrastructure (credit bureau)
ii. Legal framework for secured transactions (collateral registry)
� Sustainable credit guarantee systems
� Innovative product designi. Asset based finance (ABL, factoring, financial lease, and ABS)
ii. Credit score based lending
iii. SME cluster financing
iv. Debtor-in-possession (DIP)/Exit financing
v. Crowdfunding
� Trade finance & supply chain financei. Foster the supporting industries
ii. Stimulate internationalization of SMEs
Challenges: Financing Sophistication and Diversification
15
� Diverse players not yet involved in SME finance spacei. Specialized financiers (e.g., factors and leasing firms)
ii. Market organizers
iii. Risk-taking/contractual savings institutions
� Capital market financing for SMEsi. Respond to long-term funding needs of growth-oriented SMEs
ii. Equity finance, bond issuance, and mezzanine finance
iii. Develop the venture capital industry as a growth capital provider
� Roles of public financial institutions in SME financei. Outreach to the underserved
ii. Timely response to external shocks, e.g., financial crisis and disaster
16
Challenges: Financing Sophistication and Diversification
� In developing Asia, many countries still suffer a lack of legal framework to promote secured transactions.
� Broadening the range of pledgeable assets help enhance SME access to finance, especially women-owned SMEs.
� Pledgeable assets: movable assets, e.g., machinery/equipment, inventory of final goods, and receivables; intellectual property rights, etc.
� For the legal reform on secured transactions:
� A wide-range of pledgeable assets as collateral covered by the secured transaction law/collateral law.
� A sound registration system on movable assets.
� A speedy & efficient collateral enforcement mechanism.
Issue 1: Secured Lending for SMEs
17
Issue 2: Sustainable Credit Guarantee Systems
18
� Business sustainability� Cost efficiency & profitability
� Diversified & demand-driven business approach
� Self-funding (shift from public-dependent to market-based)
� Risk control arrangements� Develop re-guarantee system (credit insurance)
� Develop risk-sharing schemes (partial credit guarantee)
� Strengthen second credit screening by guarantee institutions
� Decentralization or centralization� Promote a regional CG system with a proper legal framework
� Develop product design for the centralized CG system (e.g., Portfolio CG)
� Infrastructure� Establish a credit risk database or credit bureau
� Credit database supports proper pricing and risk-based management by guarantee institutions.
China-Korea Currency Swap Trade Settlement
� Enable importers & exporters to settle their trade transactions in their local currencies.
� Promote LCY invoicing & settlement, reduce transaction costs for importers & exporters, and potentially benefit SME exporters & importers, especially in ASEAN countries after AEC establishment in 2015.
� ...but not yet an established system.
Issue 3: Trade Finance Facilitation for SMEs
BOK PBOC
PBOC A/C BOK A/C
Korean
BankChinese Bank
Korean Importer Chinese Exporter
① KRW ① CNY
③ CNY③
⑧ CNY⑧
⑥ CNY④ CNY Loan⑦ Repayment
② Commodity Import
⑤ Payment Instruction
① KRW / CNYCurrency Swap
Source: Extracted from the ADB presentation material “LCY Trade Settlement in ASEAN+3” prepared by D. Park and I. Shin in the ABMI Task Force Meeting, Myanmar, 27 February 2014. 19
20
Seed/Start-up/Early Expansion Steadily growing
Founders, family
& friends
Sophisticated investors
-VC funds
-Financial institutions
-Institutional investors
-Listed large firms with sufficient
investment experiences, etc.
Venture capital
Size of
investment
capital
Growth
capital
needed
Firms’
life
cycle
Exchange markets
IPO
Organized OTC
Private equity,
mezzanine finance,
etc.
Angel investors
Formal & informal
lending
-Domestic market for
emerging corporations
(SME board)
-International market for
smaller growing firms
(AIM)
-Trading venue for
unlisted SME shares
(non-exchange markets)
Source: Author’s illustration.
Growth Capital Funding and Risk Capital Providers
Issue 4: SME Capital Markets
� What:
Provide timely financing opportunities for SMEs while responding to their needs with flexibility and innovation.
� Poor access to finance limits the ability of SMEs to survive and grow.
� Limitations of bank lending under global financial uncertainty, e.g., possible negative impact of Basel III.
� No one-size-fits-all financing solution. Diversification of SME finance models is needed.
� Long-term funding needs increase as SMEs grow further. Potential for developing SME capital markets in Asia.
Policy Implications
21
� Why:
New environment requires new financing solutions for SMEs.
� Economic integration and increasing FDI inflows to Asia stimulate the structural change of SME business models.
� A globalized economy will bring more SME internationalization and new financing demands from SMEs.
� Increased importance of supply chain finance and trade finance to involve SMEs in global value chains.
Limitations to relying on own- or quasi-capital for SMEs to sustain their business.
� Diversified financing models besides traditional bank credit should be developed for healthy debt-equity structure of SMEs.
� Long-term financing for growth-oriented SMEs is key.
22
Policy Implications
� How:
Flexible and holistic policy approaches for SME financing beyond measures already established.
i. Support for SME bankability
� Promote SME credit data infrastructure.
� Promote secured lending for SMEs (movable assets as collateral).
� Establish sustainable credit guarantee schemes
ii. Support for nonbank & market-based financing to SMEs
� Facilitate new financing models rather than strictly regulate them, e.g., crowdfunding.
� Support the creation of long-term financing venue for seed firms, start-ups, and entrepreneurs with growth and innovative mind.
� Promote nonbank financing instruments, e.g., lease & factoring.
� Develop the base of professionals supporting SMEs, e.g., CPAs.
� Develop the venture capital industry serving SMEs.
� Tax incentive schemes for priority SME sectors.
23
Policy Implications
� Roles of policymakers to improve SME access to finance in your country. What are key policy components and challenges for financing SMEs?
� Ways of enhancing bankability for SMEs. What kind of innovative product design can be considered with technology?
� Potential of developing nonbank and market-based financing for SMEs. What are challenges and solutions for developing trade finance and supply chain finance?
24
Discussions
Asia SME Finance Monitor 2014
[http://www.adb.org/publications/asia-sme-finance-monitor-2014]
Asia SME Finance Monitor 2013 [http://www.adb.org/publications/asia-small-and-medium-sized-enterprise-sme-finance-monitor-2013]
References
25
Thank you for your attention.
For further questions:
Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Sustainable Development and Climate Change Department
Asian Development Bank
Email: [email protected]
26
