Exploring financial accessibility for SMEs

According to ADB's recent news release showing that a gap of some USD 425 billion between importers and exporters among developing countries is to be facilitated in 2011.

Should there be more tools to be introduced, the gap will be turning to more businesses opportunities and more jobs.

However, the enforcement of Basel III in the near future has caused big problem among the banks which are interested in finance more for SMEs. New measures such as factoring, export credit insurance, credit guarantee, bond issuing ,public finance... etc. were discussed during the first OECD-ADB Workshop on enhancing financial accessibility for SMEs in March (2013). 

Bond issuance , among other things,will be a new trend to replace banks ' lending to SMEs due to the nature of direct finance through capital market which is less regulated by Basel III.

 Bond issuances, a tool of the capital market used to be available only for large companies ,are now available to SMEs in China due to the need and more matured of the market. It was presented by Dr. Shu Jiang of Industrial Bank from China with good response during the workshop .

 If the bond market for SMEs can be further developed, the way SMEs relying very much on indirect finance ,of which the market is dominated by banks but is to be heavily regulated by Basel III, can be greatly changed, provided necessary vehicle and arrangement in terms of operation risk control are in place.

This will also help banks to release great pressure from bracing Bessel III by buying bonds instead of lending.

Apart from the change of the nature of the funding, account receivables of SMEs whose credit can be enhanced by credit insurance companies on the buyers.

For instance, on the case of a supplying chain whose core company can be some first class client banks hope but unable to deal with while other buyers risk can be diluted by putting into a big portfolio covered by credit insurance companies.

So to use capital market tool which is less regulated by Basel III based on the qualified ARs whose risks are supported by credit insurance should be the trade finance solution for SMEs eventually.

IT application in the fields of building data base and enhancing risk control of operation of trade are also important in the future. It can link with other important functions such as ERP ...etc.to further systematically monitoring the financing risk as a whole.

Only assisting banks to increase profits (margin from SMEs is normally higher than large accounts while operation costs can be drastically reduced by the application of IT and cloud technology) and alleviating risks by using credit control tools when investing banks' fund in capital market in stead of lending , enhancement of finance accessibility for SMEs will be possible.