BANKING institutions are warming up to the idea of providing credit to micro, small, and medium-sized enterprises (MSMEs), but it is crucial that small businesses be educated on how to become more “attractive” borrowers, according to a group of local and foreign experts on trade finance.
In discussing the various ways MSMEs can tap into the credit portfolio of banks, the analysts said measures should focus on removing the “stigma” attached to the image of SMEs regarding their payment capacity.
Mario Lamberte, program lead of Project Compete under the United States Agency for International Development (USAid), noted the growing willingness among financial institutions to expand their client base to include small businesses.
“Banks are now moving to the small enterprise market because the large market is so crowded already,” he explained, pointing to some partner banks that have said they are now looking at extending credit to more SMEs.
Lamberte and the other analysts spoke at a conference on strengthening the credit infrastructure network in the Philippines, an initiative of the Asia-Pacific Economic Cooperation finance leaders, held Dec. 7 at Shangri-La Hotel in Taguig City.
Lamberte said, however, that the capacity of small enterprises to present proposals to banks for financing should be improved first, stating that SMEs’ “single-entry accounting system” won’t be accepted by the banking community.
Tony Lythgoe, practice manager of the World Bank Group subsidiary International Finance Corp., agreed and brought up the perception in the lending sector of small businesses being “risky,” and underlined the need to overcome bankers’ “lack of appetite” toward serving small enterprises.
He suggests helping SMEs to make themselves more “bankable,” largely by understanding the way banks think and presenting themselves in a way that they become “interesting” to bankers.
“You have to make SMEs) understand and develop business plans, keep their information in order, and educate them on what the other side wants,” he said.
Peter Sheerin, a committee chair of Hong Kong-based Business Information Industry Association, said another major issue is the lack of trust in banks of ordinary people, who prefer to go to their families or employers to borrow money.
He urged lenders to “develop products that borrowers can use,” particularly for the farming and SME communities, and to make sure these services relate to the “whole picture” and include related offerings like insurance. This way, the two sides can develop a “comfortable” working relationship with each other, added Sheerin.
At the meeting, Lamberte also cited the high transaction costs of banking as another deterrent, and urged initiatives to make them more affordable to small establishments and agro-fishery communities.
He likewise pointed to the poor digital connectivity and underscored the need to improve the regulatory regime to foster the development of the information and communication technology (ICT).
“Improving our ICT systems is very important. In many parts of our country, they don’t have access to the Internet. Information like what we’re discussing (here) has to be disseminated to them” and this can be done only with Internet access, he said. (Philexport News and Features)