Credit access vital for SME growth


In the first volume of the “Asia Small and Medium-Sized Enterprise Monitor (ASM) 2020”, ADB notes that bank loans to MSMEs in South-East Asia averaged at 14.8% of a country’s gross domestic product (GDP) – a compound annual contraction of 1.3% – during 2010-2019. (The ADB logo at the headquarters in Manila. Reuters filepic)

ACCESS to finance is critical for the growth of SMEs.

However, limited access to formal financial services remains a serious, structural problem for micro, small and medium-sized enterprises (MSMEs) in the region, according to a new report by the Asian Development Bank (ADB).

In the first volume of the “Asia Small and Medium-Sized Enterprise Monitor (ASM) 2020”, ADB notes that bank loans to MSMEs in South-East Asia averaged at 14.8% of a country’s gross domestic product (GDP) – a compound annual contraction of 1.3% – during 2010-2019.

In the same period, bank loans to MSMEs averaged at 16.9% of total bank lending, a compound annual contraction of 0.3%.

With small businesses being especially hard-hit by the Covid-19 pandemic, there is increasing urgency to ensure ease of credit access to MSMEs.

MSMEs are a critical driving force in South-East Asian economies, accounting for an average of 97% of all enterprises and 69% of the national labour force. They contributed an average of 41% of each country’s GDP over the same period.

“The MSME credit market is small, its sluggish growth a reflection of the overall slowing growth of national economies, ” the report says.

By country, Malaysia has fared reasonably in extending formal credit to small businesses.

Bank loans to MSMEs in 2019 was equivalent to 30.3% of Thailand’s GDP, followed by Malaysia (18.5%), Singapore (15.1% for 2018), Laos (8.5%) and Indonesia (7.0%).

Meanwhile, MSME bank loans to total bank lending in 2019 reached 30.9% in Thailand, followed by Laos (19.8%), Indonesia (19.6%), Malaysia (14.6%) and the Philippines (6.1%).

The report also notes that MSME non-performing loans (NPLs) averaged 4.1% of outstanding MSME bank loans, higher than the 2.0% NPL ratio for all bank lending. However, MSME NPLs are seeing a compounded annual decline of 2.5%.

By country, the MSME NPL ratio was 5.8% in the Philippines, 4.7% in Thailand, 4.2% in Singapore and 3.7% in Malaysia for 2019.

In Malaysia, MSME credit growth remains buoyant.

“Nonetheless, panel data indicates that growth of MSME bank credit has decelerated since 2011, likely affected by increased global economic uncertainty due to trade tensions. The annual average lending rate on MSME loans was 6.0% in 2019, slightly down from 6.1% in 2018, ” says the report.

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