A New World for SMEs? The Next 25 Years
The global context is changing for small and medium-sized enterprises (SMEs) and new opportunities are arising for them to access finance to thrive and grow. However, opportunities bring new challenges. A panel of global experts and practitioners of SME finance – traditional and innovative – moderated by Claudio Viezzoli, EBRD Managing Director for SME Finance and Development, discussed both sides of the coin at the EBRD 2016 Annual Meeting and Business Forum, on Wednesday 11 May.
According to Jeffrey Anderson, Senior Adviser at the SME Finance Forum, managed by the IFC on behalf of the G-20, making the most out of the new circumstances is largely a matter of bridging the knowledge gap between small businesses’ demand and finance providers’ supply.
On the one hand, SMEs lack the ready information needed to evaluate their creditworthiness, on the other, banks have been more cautious in lending to small enterprises since the financial crisis. They not only need to evaluate risks more thoroughly but they also struggle to overcome barriers imposed by stricter financial regulations.
Strict regulation of the financial sector can be an obstacle to SME development, echoed Korkmaz Ilkorur, Vice Chair of Finance Task Force, BIAC/OECD. He advocated the need to tackle these issues at the international level, rather than just locally, through platforms such as the World SME Forum, established last year by the G-20 under the Turkish presidency.
ICT's developments, on the bright side, bring new solutions to assess the risk of investing in SMEs without burdening them too much, suggested Ahmed Moor, co-founder and CEO of Liwwa, a Amman-based marketplace lending company which focuses on providing capital to SMEs.
“The future lies in credit decisions based on online information,” argued Mr Anderson. Business models like the Chinese Alibaba.com business-to-business platform could not only boost SMEs’ entry in international markets and global value chains but potentially also provide a gateway to improved risk assessment that would enable small businesses to get more financing.
Diversifying the offer of financing instruments to SMEs – including for example guarantees – is crucial, stressed John Didiuk, Director of International Project Finance, of the development finance institution of the US government, the Overseas Private Investment Corporation (OPIC). A demand-driven, flexible approach allows boosting small enterprises even with micro-loans.
International financial institutions have a great role to play, highlighted Charlotte Ruhe, EBRD Director of Advice for Small Businesses. The EBRD also focuses on diversifying SME support. Through its Small Business Initiative, the Bank combines innovative financial instruments, including direct finance, indirect finance and business advice, with policy dialogue for reforms aimed at easing the SMEs’ capacity to play their economic role to the full development potential.
Small businesses are the backbone of a dynamic economy. The panellists agreed that supporting this vital sector will continue to play a vital role to boost sustainable growth for both developed and developing countries in the future.