Thursday, June 21 2012

AS global leaders prepare to attend the G20 summit in Mexico (June 18 to 19), they have been urged to offer more support to Small and Medium Sized Enterprises (SMEs) in gaining access to finance, by ensuring that a more widespread approach is taken to policy development for the sector and that there are greater levels of co-ordination at a global level.

The ACCA (Association of Chartered Certified Accountants) Global Forum for SMEs has said in its new Global Agenda on Access to Finance for SMEs, that more co-ordinated and consistent efforts are needed when it comes to SME financing policy. Mexico, which holds the Presidency of the G20 for 2012, has put fostering financial inclusion to promote economic growth among its five priorities for the G20 this year. The Global Forum’s agenda outlines the challenge facing the G20 in these areas, saying that SMEs around the world need — but are not receiving $4 trillion in financing — and that official “SME” or “enterprise” policy forms only a small part of the actual policies relevant to the development of SMEs.

The Global Forum argues that more attention ought to be given to how central government departments impact on SMEs who may have more influence on how SMEs access finance than the departments or agencies responsible for business and enterprise. For example, those departments responsible for fiscal policy, justice or employment law may well have a bigger effect on SMEs’ access to finance – through their decisions on tax policy on equity funding, setting up or developing better access to efficient credit information facilities right through to well-functioning property and contract law frameworks.

While governments are right to try to address the funding gap for SMEs by offering loan guarantees or providing SME funds from the central budget, they need to consider carefully how sustainable these are, especially where they seek to heavily subsidise the cost of borrowing. The full potential for defaults on such schemes cannot be deduced from the first years of operation, during which scrutiny tends to be highest. Awareness levels of the schemes also need to be carefully addressed where the demand for such products is often low.

Official institutions, such as banks, through which these funds and products are often channelled, need to be encouraged to promote them more actively to their SME clients. The agenda also says that while banks remain the most significant source of external finance for formal small firms, bank finance is generally only available to those businesses that can offer collateral or a strong record of generating profit.

This leaves a large number of SMEs which need large investments, but which have mostly intangible assets.

While it is right that much effort is invested in encouraging banks to reach out to the SME sector and provide more suitable financial products to existing clients, alternatives to bank lending need to generate similar attention and investment in order to build more complete financing markets for SMEs.