Interview: Lim Cheng Teck
In the lead up to the ASEAN Economic Community (AEC), how can access to finance for small and medium-sized enterprises (SMEs) be improved?
LIM CHENG TECK: More financing options are essential to ensure that SMEs remain competitive in a post-AEC scenario. SMEs in many countries are also not fully aware of the opportunities arising from integration and bridging this information gap must also be a priority. Individual markets across ASEAN have implemented initiatives to support SMEs. For example, the Indonesian government has launched the Programme for Eastern Indonesian SME Assistance in collaboration with the International Finance Corporation so as to provide SMEs with a wider range of financing options.
There are also credit guarantee schemes in most ASEAN countries to address the lack of collateral faced by many SMEs. Organisations like Malaysia’s Credit Guarantee Corporation, the Vietnam Development Bank and the Thai Credit Guarantee Corporation have successfully reduced the financing gap for SMEs in their respective markets. Bank lending to SMEs has also been encouraged by risk-sharing schemes such as the Loan Insurance Scheme in Singapore, which insures SME loans against default risks. Insurance premiums are co-shared between the government and the enterprise. It is clear that there are SME initiatives in place but, to improve overall access to finance across ASEAN, the AEC can play an active role in encouraging the adoption of best practices across the region. This will help drive innovation across ASEAN markets.
On the part of banks themselves, there is a need for a continued effort to develop more advanced ways to assess SME credit worthiness and create more risk-based approaches in financing viable SMEs.
Private banks dominate the market within ASEAN. Do you expect this trend to continue or is there a residual role for state-owned commercial banks?
TECK: Private banks are driven by the market and consequently are more efficient at resource allocation. In a post-AEC scenario, market competition will foster innovation, which will lead to more competitive products and services for businesses and individuals. There could be more financial institutions in each market driving competition and innovations. State-owned commercial banks have played an important role in the early stages of economic development of ASEAN states and continue to have a loyal client base. They also benefit from the advantages of scale and are best placed to lead innovation in the financial services industry.
Partnerships with multilateral lending institutions will assist in laying the groundwork for integration and support the association’s policy focus. Under the ASEAN Infrastructure Fund, the ADB provides co-financing for projects to develop road, rail, water and other infrastructure in ASEAN. The financial integration aspect of the AEC will see more competitive players and products in the market. State-owned banks must continue to enhance their services to keep up with the changing expectations of clients. If they continue to innovate by offering competitive products and pricing, I see the role of state-owned banks remaining significant.
What is the outlook for market-driven versus government-led consolidation in the financial sector?
TECK: Financial integration, driven by market forces pushing towards the realisation of economies of scale, should result in reduced process costs as a result of geographic integration and access to a larger talent pool to meet human resource requirements. Governments of ASEAN member states should continue to play a leading role in developing regional financial market infrastructure and implementing policies to facilitate and encourage market forces towards consolidation. Market forces and government policy should complement one another as we move towards an integrated financial sector under the AEC. Member states need to play a more active role to implement policy coordination. Further actions to remove impediments to cross-border movement of capital will also be imperative.
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