5 Insights to Improve Access to Finance in ASEAN

Date

October 2, 2017

On 6 September at the Inclusive Business Summit, held alongside the ASEAN Economic Ministers (AEM) meetings in Manila, ASEAN CSR Network, Oxfam and AVPN jointly launched a new report on the micro, small and medium enterprise (MSME) financing landscape in 10 ASEAN member states.


Limited technical competencies are one of the major barriers MSMEs face in accessing external finance.

Insight 1: Technical support deepening is critical

  • MSME loan applications are typically rejected due to incomplete financial records, a sound business plan, and non-participation in production networks.
  • Social investors often cite the lack of hard business skills as a barrier to finding investees in the region.
  • MSMEs would therefore benefit from free or subsidised training programmes organised in partnership with universities, corporates and investors. Mentorship networks should also be promoted. Cross-sector collaboration between the public, private and civil society sectors could prove effective in deepening technical support for MSMEs.

Insight 2: Responsible and inclusive finance are gaining traction but more can be done

  • Placing social responsibility and inclusivity at the core of their businesses would enable entrepreneurs to access more financing options, especially social investment.
  • Yet, the notion of responsible finance has yet to permeate mainstream financing mechanisms in ASEAN while social investment is still relatively nascent.
  • Fostering responsible and inclusive finance, including social investment, is therefore key to improving MSMEs’ access to finance. Removing barriers facing investors and MSMEs in providing and receiving foreign capital is an important step in this direction.

Insight 3: Patient capital is a key need in ASEAN

  • The pervasive lack of patient capital available to early-stage social enterprises has been well documented in the literature on impact investment.
  • This is particularly pertinent in ASEAN since investment readiness is generally low. Social entrepreneurs in the region are typically years away from being able to effectively absorb impact investment.
  • There exists a sizeable ‘missing middle’ for ticket sizes of USD 200,000 and below as most investors wish to invest above USD 200,000.
  • A regional initiative in a similar vein as the Missing Middle Investors Network, established by IFC, DFAT, Capria, Michael & Susan Dell Foundation, among others, could go a long way in strengthening social enterprises in ASEAN.

Insight 4: Women entrepreneurs need targeted support

  • Women entrepreneurs tend to face more financing hurdles than their male counterparts. 21% of women entrepreneurs versus 13% of men entrepreneurs cited loan application paperwork a challenge.
  • Targeted support for women entrepreneurs could include: (i) entrepreneurship development programmes in partnership with women entrepreneur associations, (ii) marketing programmes, and (iii) formal networks dedicated to capacity building for women entrepreneurs.
  • Venture capital and social investment funds investing in women-owned and women-led enterprises should also be encouraged.

Insight 5: Large corporations and mainstreams financial institutions should play a more active role

  • Large corporations should lead the way by building up the capacity of their MSME suppliers. The provision of supply chain financing and venture capital investment could help to build up the capacity of MSMEs in the region.
  • Mainstream financial institutions should cater to the financing needs of MSMEs. Meanwhile, socially responsible investing has gained significant momentum worldwide, signifying the need for financial institutions in the region to follow suit. Banking associations have an important role to play in raising awareness about responsible and inclusive finance among their members.

The full report, including a 160-page Directory of Financing and Technical Support Options, is available here.

To learn more about the ‘missing middle’ phenomenon in ASEAN, read our analysis here.


About Author
Anh Nguyen
Anh Nguyen Knowledge Manager AVPN

Anh Nguyen is Knowledge Manager at AVPN.

She brings into the role her passion for inclusive and sustainable economic growth and diverse experience in finance, academia and non-profit. Most recently, Anh was a Research Fellow at Lee Kuan Yew School of Public Policy, National University of Singapore (NUS), where she co-authored two books on competitiveness analysis for ASEAN economies, a journal paper on economic development models for Singapore and Malaysia and an editorial opinion on Vietnam for the Strait Times. Prior to that, Anh worked as a Research Intern at the Mekong Institute in Khon Kaen, Thailand, an intergovernmental organization that implements capacity building programs for countries in the Greater Mekong Sub-region. In addition, she had worked at Bloomberg L.P., OCBC and DBS.

Anh holds an MSc in Development Studies from the London School of Economics and Political Science (LSE) and a BA (Hons) in Economics from Nanyang Technological University.