SMEs Financing & Financial Policy

SET AUNG20th December 2014

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SMEs Problems

• Multidimensional problems (not just access to finance)– Access to market– Quality and productivity– Access to information– Others

• More of less the same in many developing countries

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Why is SMEs Financing Difficult

Lack of information

Lack of Collaterals

Lack of financial sources and products

Lack of accessibility

Lack of knowledge and capacity

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How Should SMEs Get Financed?

Equity Debt

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Traditional Financing

Others’ moneyOthers’ money

Own moneyOwn

money

EquityEquity DebtDebt

Bank loansBank loans

BondsBonds

Investment Vs Financing

Investors Companies

Stocks

Investment Financing

ProjectsProjects

Inve

stm

entBonds

Investors’ Side• Direct equity investment at stock exchanges (e.g.

AIM)

• Portfolio investments– Passive investments

• Small/Large Index• Growth/Value Index

– Active investments• Market timing

• Investments in fixed-income securities (e.g. corporate bonds, debentures)

Companies’ Side

• Trade-off theory of capital structure

• Various sources of debt financing– Banks– Venture capital/ Angel financing– Trade finance (Factoring, discounting)– Leasing– Bonds– Crowd funding

What is Needed for SMEs Financing

Information- Credit Bureau system- Banks’ database system- Collateral registration

- Credit Bureau system- Banks’ database system- Collateral registration

Financial Products & Sources

- Banks and NBFIs (Crowd funding in future?)- Factoring, leasing, etc.- SME Fund, Credit line, Guarantee scheme

- Banks and NBFIs (Crowd funding in future?)- Factoring, leasing, etc.- SME Fund, Credit line, Guarantee scheme

- Bank branches (Mobile banking/payment)- Bank branches (Mobile banking/payment)Accessibility

Lack of knowledge & capacity - Training & awareness (Automated advice?)- Training & awareness (Automated advice?)

Collateral - Movable assets registry- Movable assets registry

Impacts on SMEs

• Impact of inflation/lowflation/deflation

• Impact of high interest rate (how can it be mitigated?) & credit crunch

• Impact of high risk/ high return concept

Impacts on SMEs (Cont’d)

• Impact of FDIs to change strategy– SMEs Vs. SIs– How to take advantage of AEC

• Impacts of the exchange rate– Borrowing in FX– Current situation of offshore loans– 1997 financial crisis

Near-Future Positive Impacts on SMEs

• Once-Stop-Service-Centers

• Loans from policy banks (including two-step-loans)– SMEs may still get denied (Vietnam’s case)

• Credit guarantee system

• Credit Bureau system/ Collateral registration

Future Positive Impact (Cont’d)

• Trade finance (factoring, discounting, leasing, etc., by banks and NBFIs)

• Payments and e-Commerce

• Forwards & Swaps for hedging FX risk

Thank You for Your Attention

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