Help SMEs gain greater financial literacy: ACCA
By Digital News Asia March 17, 2014
- Businesses and investors have lost faith in banks; new regulations forcing banks away from traditional lending
- Financial education is needed for entrepreneurs to gain access to new and different forms of funding
GOVERNMENTS and policy-makers around the world must encourage financial literacy among small businesses, remove uncertainty in regulation and encourage the publication of more information to enable entrepreneurs to more easily gain access to new and different forms of funding, according to the Global Forum for Small and Medium Sized Enterprises (SMEs).
The discussion forum was developed by the ACCA (Association of Chartered Certified Accountants) to find out more about what factors give rise to financing innovations, what measures could help them reach more businesses, and what obstacles are holding them back from their potential.
The forum recently released a policy paper titled Innovations in access to finance for SMEs, where it reviewed a broad range of innovations aimed at directing more finance to SMEs – from Alipay in China and Peer to Peer lenders in the United Kingdom, to Kabbage in the United States, M-Shwari in Kenya and Cadenas Productivas in Mexico.
The research looked at the major trends driving innovation, ACCA said in a statement. It found that businesses and investors have lost faith in banks, while new capital and liquidity regulations are forcing banks away from traditional lending to small businesses.
Meanwhile, ultra-low interest rates have sent investors in some parts of the world looking for better returns on their money, prompting them to explore new asset classes such as SME credit, trade credit and early stage equity.
In addition, there has been a rise in e-commerce platforms and payment systems which are creating their own financial information; an increase in the use of real-time information by alternative finance providers; and online financial intermediation is becoming increasingly acceptable to businesses and investors.
International coordination, by the G20 leaders and the World Bank Group among others, has highlighted examples of financial innovation in many parts of the world, drawn attention to common barriers to SME finance, and helped spread best practices.
The forum also identified three types of obstacles to innovation in SME funding, ACCA said:
- First, there is a lack of financial education among SME owners. ACCA has urged policy-makers to reconsider their approach to financial literacy, focusing on a ‘business plan first’ strategy where qualified finance professionals deliver ‘just-in-time’ training and mentoring based on the business’ needs.
- Second, there is a lack of appropriate financial infrastructure from credit databases and payment systems to asset registries and credit default data, in much of the world. Making this information public has the potential to transform intermediation.
- Third, there are substantial uncertainties in legislation, regulation and in accounting rules which need to be resolved. The most substantial issues highlighted by the forum relate to the protection of minority shareholder rights; the classification of receivables under accounting rules in multi-lender platforms or supply chain finance (SCF) programmes; the status of factored receivables in bankruptcy; the regulatory risk weightings applied to Bank Payment Obligations, and the regulatory status of new alternative funding providers.
“Our research suggests a worrying lack of financial awareness among the world’s entrepreneurs; as the SME sector’s most trusted financial advisers, finance professionals have proven they can lead the drive for financial education, and we call on policy-makers to engage the profession more fully in their efforts,” said Rosanna Choi, chair of ACCA’s Global Forum for SMEs.
“On the whole, the forum does not view regulation as an enemy of financial innovation. Of course the banks’ ability to finance businesses has been hit by regulation; in some cases, this has been vague or ill-thought-out. Other providers are certainly taking advantage of the banks’ regulatory weaknesses.
“But it is clear to us that smart regulation can positively spur innovation by building much-needed financial infrastructure and offering greater certainty to finance providers and users,” she added.
As an example of innovation, Leong Soo Yee, the head of ACCA Singapore, called out moves by the Singaporean Government.
“We congratulate the Government on the latest Singapore Budget to extend and enhance the Productivity and Innovation Credit (PIC) Scheme. This financing innovation has assisted and will continue to assist SMEs in Singapore.
“Going forward, we would encourage more financial innovations from the Government as well as the private sector to help SMEs. Singapore can learn from many of the financial innovations undertaken around the world presented in this policy paper,” Leong said.
The download the policy paper, click here.
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