Manila: A comprehensive report, titled “Towards Inclusive and Sustainable Growth in the ASEAN Economic Community”, and key recommendations based on this research, were presented to ASEAN leaders today on 6 Sept 2017. The focus of the report and the recommendations was on how ASEAN could build up the Micro, Small and Medium Enterprises (MSME) sector, with greater financial and technical support to ensure their growth and prosperity.
The report covering 10 ASEAN Member States is a result of a 12-month study which began in September 2016. It comprised primary and secondary research which included interviews and stakeholder consultations with investors, foundations, farmer groups, business associations, women entrepreneur networks, ASEAN bodies, incubators/accelerators, government agencies and others.
The aim of the study is to comprehensively assess the opportunities and challenges faced by MSMEs in ASEAN – particularly those with inclusive and responsible business practices such as Social Enterprises (SEs) – with regards to access to finance, technical support, and an enabling environment for their sustainability and growth.
This press release is in two parts – a summary on the findings of the study and the key recommendations made.
The findings of the report showed that MSMEs in this region faced some key challenges, particularly with regards to access to finance. There exists a ‘missing middle’ phenomenon, where MSMEs in early- to growth-stage remain underserved by financiers. MSME’s entrepreneurs typically exceed upper thresholds for smaller loans such as microfinance, and yet are perceived by financial institutions to be risky and costly customers.
The uptake of available financing options by MSMEs has generally been low, with loan applications typically facing rejection due to incomplete financial records, small sized enterprises, non-participation in production networks and lack of sound business plans. Women entrepreneurs tend to face more formidable financial hurdles than their male counterparts. Challenges frequently cited by women when obtaining bank loans include lower levels of financial literacy, lack of a support network and cumbersome land titling process which affect their ability to use land as collateral. Various surveys indicate that for MSMEs, including women entrepreneurs, own savings and funds from family and friends remain the dominant source of finance.
The study also found that while alternative finance and inclusive financing mechanisms are growing in the region, there continues to be a lack of patient capital available for early-stage inclusive business models (such as SEs). This includes financing mechanisms such as financial technology (fin-tech) and impact investment.
“MSMEs are critical to the economic development and growth of the ASEAN region and comprise 95-99% of all business establishments, generating between 51% and 97% of employment. It is great to see ASEAN’s commitment to strengthen this sector in the ASEAN 2025 Blueprint. Oxfam and its partners are happy to play a role in supporting the ASEAN Economic Community (AEC) in its initiative”, says Oskar Haq, Oxfam Global Advisor, Enterprise and Economic Empowerment.
Key recommendations from the report:
1. Strengthen responsible and inclusive conduct among businesses, including to encourage larger corporations with the capacity to support MSMEs through their value chain
2. Deepen technical support for MSMEs to improve access to finance, including training on hard business skills and strengthening entrepreneurial networks for peer support
3. Promote alternative finance with an emphasis on inclusive financing options
4. Provide targeted support to improve women’s access to finance
5. Promote responsible finance – i.e. factor Environmental, Social and Governance (ESG) criteria into lending decisions
Further action needed:
Based on the study’s findings and the recommendations, the project partners are keen to share information and enable financial support for MSMEs.
ASEAN CSR Network (ACN)’s CEO, Mr Thomas Thomas, reaffirmed this, saying “We will work on implementing these recommendations among key stakeholders in ASEAN, including face-to-face meetings and technical consultations with ASEAN bodies, national governments and businesses.”
ASEAN Business Advisory Council (ASEAN-BAC) has been working closely with private business partners in pushing for MSME empowerment and Inclusive Business. Its (Acting) Executive Director, Mr Gil Gonzales says: “We are encouraged that ASEAN Leaders fully recognise the importance of developing MSMEs as the new engine of growth in the region, working hand in hand with big business and corporates who promote inclusive business. Otherwise, AEC will never achieve inclusive growth as set out in the AEC 2025 Blueprint. Our true aspiration is not just prosperity for a few, but prosperity for all.”
AVPN, a network of 380 Asian Social Investors, plans to use the report findings to promote the expansion of responsible and inclusive finance amongst their membership. “There is a spectrum of social investment tools that can be used to support responsible and inclusive enterprises in ASEAN – from grants to soft loans or convertible debt and equity,” says Managing Director, AVPN Knowledge Centre, Kevin Teo. “We are working to increase awareness of these different tools and encourage more funders to address this ‘missing middle’.”
The report also includes a 160-page Directory of SME Financing and Technical Support Options which will serve as a valuable resource for MSMEs in the region.