SMALL and medium enterprises (SMEs) have a huge potential in being a major part of the global economy.
This is the general sentiment of speakers during the symposium on the Asia-Pacific Economic Cooperation (Apec) 2015 priorities held on the first day of the two-day Informal Senior Officials’ Meeting (Isom) in Makati Shangri-La on Monday.
Small businesses continue to prove their worth in global trade not only because the number of players continue to grow but also because of the rising number of people employed in this sector.
Various governments around the globe have contributed to the growth of the sector, yet, its presence remains minute compared to its potential.
The reason: SME players continue to find it hard to meet regulatory requirements, as well as secure adequate financing from the banking sector.
For one, several banks continue to consider the sector a risk because of lack of data on their borrowing capacity among others.
This makes the sector very costly to finance, panelists said.
Thus, the need to have more digital, diverse and real-time data that would back up the sector.
This problem, however, is being addressed by a few banks offering products to the SME sector. These financial institutions have taken advantage of opportunities presented by this rising sector through cross-selling of bank products among others.
It was disclosed during the symposium that the digital universe is growing more than twofold every two years.
With this, emerging markets, where most of these SMEs are located, are seen to surpass mature markets by 2017 in the digital universe.
Also, because some banks remain unwilling to lend to the sector, alternative online lenders have mushroomed and serve as funding sources for small businesses.
Not only do these alternative finance sources provide budget but also speed, convenience and cost.
And as products and services being offered to SME players become intricate, the need to equip small businessmen the know-how on latest innovations on electronic commerce (e-commerce) was raised.
This focus on the SME and microbusiness is in line with the Apec 2015 Summit Meetings, which the Philippines will host.
Trade Secretary Gregory L. Domingo, in his speech during the opening ceremonies of the Isom said, the Philippines “will put special emphasis on the SME agenda.”
“From our perspective, the SME agenda is very critical actually not only to Apec, but to the forward movement of global trade in general because SMEs are one of the strongest voices now opposing global trade,” he said.
Domingo said the sector is among the groups strongly opposing global trade because they hardly feel its benefit.
“Many of the SMEs seed the influx of goods and services into their own markets but find it very cumbersome and difficult to take advantage of the free-trade agreements because of the cumbersome rules and procedures,” he noted.
Domingo said that for him there are two different kinds of SMEs—those that are part of the global value chains and those that are smaller players known in the Philippines as the cottage industry, or those employing up to five employees yet produce quality products.
He said these players really need to be helped because “it’s really market access that’s lacking for the most part.”
For one, the Philippine micro, small and medium enterprises (MSMEs) account for bulk of total enterprises in the Philippines at 99.6 percent, account for 61 percent of total employment in the country, and contribute 32 percent to gross domestic product. PNA
A World Bank (WB) survey on financial access of MSMEs placed the global volume of SME lending to about US$ 10 trillion in 2009.
Bulk of this amount or about 70 percent was extended to SMEs based in high-income countries and only 25 percent is accounted for by the East Asia and the Pacific.
However, although East Asia and the Pacific takes on the second place, 90 percent of the financing in the region is concentrated in China.
For the Philippines, only about 20 percent of the small entrepreneurs have access to loans offered by financial institutions, according to the central bank.
Thus, the Bangko Sentral ng Pilipinas has given the SME sector a special focus through the implementation of several incentives to banks that lend to small businesses.
These measures include the reduction of risk weight for SME loans from 100 percent to 74 percent, excluding SME receivables purchased by banks and other institutions from the single borrowers limit and exempting documentation requirements like Income Tax Return.
The central bank also continues to help put up Credit Sure Fund (CSF) around the country.
CSF is a pool of fund from combined contributions of local governments, cooperatives and nongovernmental organizations that provide as much as 80 percent surety cover for loans extended by banks to small borrowers.
With this attention given to SMEs, it is not impossible that the sector will eventually find its right place in the global economy.