Limited access to bank credit continues to remain a persistent problem in Asia and the Pacific for small and medium-sized enterprises (SMEs), a recent Asian Development Bank (ADB) report said.
According to the report, lending to SMEs has declined over the course of the global financial crisis and in 2014, as they received only 18.7 percent of total bank loans.
“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.
The report also said the non-bank 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.
As of the end of 2013, Sri Lanka had 132,483 SMEs, which contributed a third of the country’s gross domestic product, 30 percent of its value-added manufacturing output, employed 35 percent of Sri Lanka’s labour force and provided 20 percent of the value of the country’s exports. The island nation has a further 880,066 micro enterprises, the report said.
The Sri Lankan banks have taken steps to assist SMEs by providing not only credit but also advisory services.
The top 13 commercial and development banks provided Rs.54.6 billion in loans to SMEs in 2013, up 106 percent from 2012. However, very few mid-sized firms are listed on the Colombo Stock Exchange and venture capital funding is of a small scale.
The Asia SME Finance Monitor 2014, which assesses 20 countries in developing Asia, noted that SMEs make up an average of 96 percent of all registered firms and employ 62 percent of the labour force. However, they contribute only 42 percent of economic output.
According to the ADB report, the regional integration and trade liberalization offer opportunities for smaller firms to explore offshore markets while exposing them to increased competition.
ADB also said the governments in the Asia Pacific 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.
Ongoing efforts to open up the equity markets to SMEs in some of the Asia Pacific countries would also help provide SMEs with the long-term financing they need to mature, the report noted.