SPEECH BY MR CHAN SOO SEN, MINISTER OF STATE FOR EDUCATION & TRADE AND INDUSTRY AT THE 2nd SME CREDIT BUREAU CONFERENCE ON 19 MAY 2006, 9:20 AM AT SUNTEC SINGAPORE INTERNATIONAL CONVENTION & EXHIBITION CENTRE
Mr Kevin Koo
Chairman, Info credit Holdings
Mr Lawrence Leow
President, Association of Small and Medium Enterprises
Mr Inderjit Singh, Chairman,
Finance Action Crucible of the Action Community for Entrepreneurship
Ladies and Gentlemen
Introduction
It is my pleasure to join you this morning at the 2nd SME Credit Bureau Conference. The theme of today’s conference “Survival Business Tools for SMEs” is indeed relevant for entrepreneurs as the present business environment is certainly more competitive than before. One key element in helping SMEs stay ahead of competition is access to resources for their business operations.
Challenges faced by SMEs in borrowing from banks
In my various interactions with SMEs, I have been told quite often that a key obstacle to their growth is raising sufficient capital. From what I hear, SMEs have difficulties in getting financing from banks because they lack an established track record and appropriate collateral. They also cite the recent consolidation in the financial industry as one of the reasons.
Another commonly cited reason is that banks do not understand their SME clients’ business and have little knowledge of the industries they operate in.
Efforts of public and private sector to enhance SMEs’ access to financing
On the one hand, I hear SMEs’ frustrations in accessing financing. On the other hand, I see that the Government has been working closely with the private sector over the past few years to address this issue. Its efforts are based on a 3-pronged approach.
Firstly, a suite of financing schemes has been developed to address areas where there are market gaps. For example, to assist the start-ups, the government came up with the Start-up Enterprise Development Scheme (SEEDS) and the Business Angel Scheme (BAS) to provide equity financing to them.
For the growing SMEs, the Local Enterprise Finance Scheme (LEFS) has been highly successful in providing them with fixed interest asset financing. Since LEFS started in 1976, close to 40,000 loans worth $10 billion have been disbursed. Micro-enterprises, that is businesses with less than 10 employees, can also obtain unsecured loans in the form of Microloans. Since its launch in 2001, some $326 million worth of Microloans have been given to more than 10,000 micro-enterprises.
Secondly, the Government has been catalyzing new financing options, examples of which include the Loan Insurance Scheme (LIS) and the SME Access Loan. Under the LIS, the Government defrays the cost of credit insurance to encourage the banks to be more open in extending trade financing.
The other financing option, SME Access Loan, is another innovative means of opening up a new avenue by tapping on the capital market for funds through loan securitization. The pilot phase of the scheme has been completed recently and I am pleased to note that it has provided loans of over $100 million to more than 400 under-served SMEs. One of them is a chemical trading company. Thanks to the scheme, the company managed to secure more than $2 million to start its manufacturing operations in China.
The third approach adopted by the Government is to create greater awareness and match SMEs to the appropriate financing options available. Through various platforms, such as the Finance Roadshows, Deal Flow Connection, Enterprise One and the Enterprise Development Centers, SPRING and its industry partners aim to make SMEs more financially savvy.
Beyond the Government’s efforts, I am very encouraged to note that banks are also giving greater focus to SMEs. This can be observed from the launch of new financing tools from the banks to cater to the different SME segments. Quite a few banks have also established specific units to better serve SMEs.
In addition, the Straits Times, or ST, reported that several banks are now offering unsecured loans to SMEs, which is welcome news to many SMEs that lack collateral. The ST article also cited an entrepreneur who was surprised by the speed and ease of securing a bank loan. He did not have to provide collateral nor a substantial number of documents. Indeed, all these point to a change in the stance that banks are now adopting towards lending to SMEs.
Better communication needed
Thus, it is perhaps not surprising that in the latest SME Development Survey conducted in 2005 by DP Information, almost half of the survey respondents reported improvements in their ability to access financing. Nevertheless, the Government is not resting on its laurels. We have pledged $3 billion worth of loans to SMEs for the next 5 years. This is expected to catalyze another $3 billion of loans from the private sector for the SMEs over the same period. This translates to a total of $6 billion worth of loans for SMEs, which should further improve SMEs’ access to financing in the near future.
Greater Awareness of Financing Options
While much has been done, financing remains a key area of concern for many SMEs. One reason, I believe, could be because SMEs are just not aware of the different financing options that have been developed for them. To address this, I look forward to seeing better communication between government agencies, banks and the SME community to build up the SMEs’ awareness on financing. There is already an ongoing series of finance roadshows which are organized by SPRING, the Action Community for Entrepreneurship, the chambers and associations. I urge all of you to participate in them.
To further improve on the communication to SMEs, SPRING is currently working a listing of SME financing instruments available in the various banks. Targeted to be ready by end August this year, this listing will be made available to SMEs on the Enterprise One portal, as well as through forthcoming financing roadshows.
SMEs need to help themselves too
While the Government will continue with efforts to improve the financing environment, entrepreneurs must remember that they themselves play the most important role in raising capital. They have to be open and be adaptable to change. Many entrepreneurs continue to hold a tight rein on their financial records and are reluctant to let go of control of their companies. This severely restricts the financing options available to them and reduces their chances of success in their fundraising efforts.
Entrepreneurs must show commitment and belief in their business, and strive to improve the financial management and creditworthiness of their companies. All these will help to facilitate their access to funds. As the risk appetites and priorities of the various banks differ, SMEs must also recognize that they may need to talk to different parties before finding the right match.
Ultimately, despite all efforts, not all SMEs can be guaranteed to secure financing successfully. Those who have failed previously should not dismay. They should instead work hard on their weak points and improve their credit standing.
One way SMEs can do so is by joining the SME Credit Bureau jointly operated by Info credit D&B and ASME, and supported by SPRING. This central database of credit-related information improves information transparency in the SME lending market, thus enabling lenders to better assess the risk profile of the SME borrowers. This also helps SMEs identify their credit strengths and weaknesses, as well as enhance the chances of creditworthy SMEs in securing financing.
Today, the SME Credit Bureau is adding a new service to its portfolio. It is the Singapore Business Toolkit which is developed in collaboration with the World Bank’s International Finance Corporation. The Toolkit will help SMEs to identify areas of weaknesses and offer basic advice to address these areas. The ultimate goal is to improve SMEs’ credit standing and thus enhance their chances in raising capital.
Conclusion
In conclusion, we will continue to do more to reach out to SMEs and improve their access to financing. Going forward, more emphasis would be placed on getting SMEs to be more financially savvy. This cannot be an effort by the Government alone.It also requires the effort by the private sector, and more specifically the banks, and the chambers and associations.
Today’s conference is a good platform to start off this effort. On this note, I wish all of you a fruitful and useful Conference.
Thank you.