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Access to finance crucial for Asian SMEs to generate jobs, ADB says

Small and medium-sized enterprises 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 report by the Asian Development Bank. "Most of Asia's smaller firms are faced with difficulties in obtaining finance," said Noritaka Akamatsu, deputy head of the ADB's Office of Regional Economic Integration, which produced the inaugural edition of "Asia SME Finance Monitor", released yesterday.

"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 realise their potential," Akamatsu said.

SMEs - defined differently in different countries but generally with a small workforce or low assets - make up 98 per cent of all businesses and provide jobs for 66 per cent of the labour force in Asia, but they represent only 38 per cent of the region's gross domestic product, indicating that governments can boost economic growth by developing them.

However, 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 2008-09 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 them 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 the China, where SMEs contribute 50 per cent of tax revenues, 60 per cent of GDP, and 80 per cent 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 from other countries, further study is needed on the link between the wider availability of finance and SME growth, the ADB says.

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, according to the report, which includes data on SMEs in 14 countries in the region.


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