Small and medium-sized enterprises (SMEs) in the Southeast Asia region still have difficulty gaining access to financing. Even though SMEs play a critical role in the economy of nearly all ASEAN countries, they still struggle to get capital loans from traditional financial institutions and banks. The lack of credit facility affects Singapore SMEs as well. Many Singapore SMEs rely on bank loans, yet in reality, four in ten local SMEs are without banking support. What created this situation and how do we deal with it?

Financial problems haunt ASEAN SMEs

In a report titled “Digital banking for small and medium-sized enterprises: Improving access to finance for the underserved”, Deloitte and Visa underlined the poor financial inclusion of SMEs in Southeast Asia. According to the report, SMEs in Malaysia, Indonesia, Thailand, Philippines, and Singapore contribute 30% to 60% of each country’s gross domestic product (GDP), along with employing 60% to 90% of their respective national workforce. Despite their great contribution to their respective economies, SMEs still lack financing, especially capital loans. The same report shows that less than 60% of SMEs in these countries have access to bank loans, while around 50% are unserved or underserved by financial institutions. Indeed, this condition hinders SME growth. There needs to be more loan products and financial support for Southeast Asian SMEs, including our own Singapore small businesses.

The lack of financing for Singapore SMEs

Among the Southeast Asian counties mentioned above, Singapore is the country where SMEs rely most on bank loans for capital financing. Six out of ten Singapore SMEs rely on bank loans, but the other four are underserved by financial institutions. Part of the reason why traditional institutions find SME loans a risky undertaking is because SMEs tend to lack credit information and history. This raises the cost of credit-risk assessment and makes it less acceptable for a financial institution to service certain segments. Such difficulties in accessing SME credit-worthiness hinder the segment’s development in Singapore. SMEs need sufficient cash flow and continual improvement of operational efficiency and productivity. Without sufficient capital, they will be unable to build innovative and sustainable businesses in today’s competitive climate. To drive the point home, a National Business Survey done last year by the Singapore Business Federation said that 72% of Singapore SMEs required funds to better manage their working capital and alleviate cash flow problems. New financial innovations, including electronic lending and digital lending, have entered the Southeast Asian market. In Singapore today, SMEs can also consider applying for working capital loans or invoice financing from a peer-to-peer lending platform. We hope that these contemporary financial innovations will help ease the SME funding gap. After all, SMEs are the backbone of the national economy.

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