As global leaders prepare to attend the G20 summit in Mexico (18 – 19 June), 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 calls for more attention to be given to how central government departments, particularly those departments responsible for fiscal policy, justice or employment law have an impact 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.
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 the microfinance sector is offering a promising solution by tapping into social networks on the ground for the information that banks are missing, the extent to which it helps the SME sector needs to be better understood at a macro level, especially where experiences from a number of markets can be shared. The option of equity finance also needs to be improved, and emerging and innovative financing solutions need to be encouraged and supported, including 'crowd funding', which uses online communities for raising equity.
The agenda also says that SMEs should also be encouraged to consider how they use technological solutions in helping them with financial management and calls for the skills gap among business owners need to be addressed. Very few have formal enterprise or management training which has an impact on their ability to access finance – from having the knowhow to present a business plan, navigating through the financial markets on offer, to knowing how to apply business skills and acumen to manage and grow their business with a strategic approach to its operations, and ultimately finance.
It calls on the accountancy profession to work with governments and other relevant institutions such as SME bodies, to provide financial literacy and management training for owner-managers. The Forum urges international organisations to work with national governments to encourage much wider use of such initiatives in the interest of raising the level of skills, with a particular emphasis on working with the existing SME intermediaries to enable a reliable access to the sector.
“In Pakistan and in most developing economies, the issues and problems faced by SME businesses are fairly similar. There is a definite need for establishing training / financial management / consulting institutes to help SMEs in developing corporate governance, plans, systems / processes and training of staff. Region / Country specific recommendations are needed focusing on adherence to Tax Culture, Private / Public partnerships, Documentation, Etc. To encourage SME growth, government and public administration should establish SME centric facilities to expedite formalities while reducing the red tape. Financial Institutions focus on Risk Mitigation & Coverage. Creation of Insurance / Takaful products with focus on SME specific risks will provide the impetus needed to invest in SME sector. In Pakistan, Leasing and Modarabas are a major source of funding for SMEs. Banks could be encouraged by the Regulators to provide relatively cheaper funding lines to Leasing & Modarabas”, said Arjumand Minai, Member - ACCA Global Forum for SMEs and CEO, Standard Chartered Leasing Limited, Pakistan.
“There are a range of issues which policy makers, banks and the accountancy profession need to address and we urge the G20 to consider many of these problems at its meeting. There are persistent market failures that stand in the way of a long-lasting change in SME financing across the world and we hope the G20 can begin to address them, and we look forward to discussing these issues further with G20 members and other bodies around the world,” said Arif Masud Mirza, Head of ACCA Pakistan.
