Enhancing Small Enterprises' Access to Finance: ADB's Take

ADB supports the vital role that small and medium-sized enterprises play in reducing poverty in Asia by working to improve their access to credit.

Small and medium-sized enterprises (SMEs) make up 98% of all businesses and provide jobs for 66% of the labor force in Asia, but they represent only 38% of the region's gross domestic product.

Among the constraints to the development of SMEs in the region is their lack of capital in improving and expanding business operations, making them highly vulnerable to market fluctuations. They have poor access to credit because banks view them as too risky and more likely to default on loans.

ADB recognizes the vital role that SMEs play in reducing poverty, creating jobs, and promoting innovation in Asia and the Pacific. It supports policies and programs that promote the growth of these enterprises and expand their access to finance.

This year, ADB published the inaugural edition of the Asia SME Finance Monitor to provide policymakers with timely and comparative data on SMEs in the region and present best practices and experiences on SME finance. The report underscores the need to tap a wide range of financing instruments, including capital market financing and other nonbank options, for SMEs to realize their full potential.

ADB financial experts explore the potential of capital market financing for SMEs to address their long-term funding needs in a recent working paper.

Lessons from financial crises

ADB has also co-produced a study with the Organisation for Economic Co-operation and Development (OECD) on enhancing financial accessibility for SMEs by building on lessons learned from the recent financial crises. Download the publication.

Many SMEs were crippled by the global financial crisis in 2008-2009, particularly those serving as subcontractors for large companies. Unlike the big players, these small enterprises do not have a ready line of credit that they can tap in times of uncertainty. The breakdown of their operations has affected supply chains.

A working paper discusses a new regime of SME finance in an era of global imbalances. It prescribes using a holistic approach in designing financing schemes, which take into consideration the growth stage of the SME and the level of economic development of the host country.

In response to the crisis, ADB has also created a supply chain finance program for cash-strapped SMEs in Asia. ADB has partnered with Standard Chartered Bank to share risk in financing more than $800 million in supply chain transactions over the next 3 years, most of which will be directed through SMEs that are supplying large companies with materials for intermediate and final production, as well as retail sales.

In addition, ADB is investing up to $25 million in a new fund designed to support the growth of SMEs in Southeast Asia and the People's Republic of China (PRC). The ASEAN China Investment Fund II will help leverage interest from other investors to raise money in the capital markets in the wake of the global economic crisis. It follows ADB funding of $15 million in 2004 for the similarly targeted ASEAN China Investment Fund. Learn more about the fund.

ADB is also helping develop high-yield bond markets for SME financing. In the PRC, it is providing technical assistance in formulating strategies and programs needed to develop a high-yield bond market and appropriate investor protection mechanism.


This page was generated from /features/enhancing-small-enterprises-access-finance-adbs-take on 05 May 2024

Source URL: https://www.adb.org/features/enhancing-small-enterprises-access-finance-adbs-take