SPECIAL REPORT: The Impact of Finance on the Development of Micro, Small and Medium Enterprise (MSMEs) in Cambodia, Myanmar, Vietnam

ThisBanking With the Poor Network discussion of supporting micro, small and medium enterprises (MSMEs) centered on (1) building systems to boost institutions’ confidence in lending to the sector; and (2) the non-financial needs of MSMEs.

Gerald Sun, Vice President, Head of Sales for Commercial Payments Asia/Pacific at MasterCard Worldwide, said “the banks have trouble making a risk assessment cheaply enough. They lend to big organizations based on their income. For SMEs [small and medium enterprises], they revert to looking at assets as they would for consumer lending. The bank can value a house or car, but not a ton of fertilized chicken eggs.” MasterCard is addressing this issue by working with SMEs to help them implement digital invoicing. “Our studies show that 3 percent to 7 percent of the costs of an SME are spent managing paper invoices. Once we digitize, the money moves faster, and it becomes easier for lenders to lend.”

Pascal Ly, the CEO of Credit Bureau Cambodia, explained that “the credit bureau plays an important role because it captures data [that] is then helping banks and MFIs to lend.” Mr. Ly also discussed “invoice discounting,” through which a funder pays an SME upfront when it receives an order from a customer. This cash flows enables the purchase of supplies for the order. After delivering it, the borrower repays the loan plus a premium that might be roughly 25 percent. This is widespread in China, partially enabled by a state-run invoice tracking system.

Despite these suggestions, the majority of the panel agreed that MSMEs have needs that are more pressing than finance. Shigehiro Shinozaki, Financial Sector Specialist for SME Finance with the Asian Development Bank, said “SMEs [face challenges,] such as lack of financial knowledge and insufficient management capacity.” Mr. Sun said “as an SME or someone who just started a business, typically the big problems are time, skills and resources.” Mr. Ly said that “SME owners don’t want to know about the legal part of the business – the taxes. In Cambodia, they must pay tax every month. They don’t know about options to contract that out.”

Nguyen Thi Tuyet Minh, Chairwoman of the Vietnam Women Entrepreneurs Council, said that her members lacked the knowledge needed to translate their ideas into practice and to use finance wisely. In response, her organization set up mentoring relationships and held a “start-up festival” to help its members sell ideas to investors and MFIs. Mr. Sun added that MasterCard is “working with partners to create an iTunes-like store with inventory management software and other tools that MSMEs can access and call in for help with.”

Yannick Milev, Entrepreneurs du Monde’s Country Coordinator for Cambodia, India and Myanmar, described a program in the Philippines through which his organization provided loans along with “intensive business support” for people who had been excluded by local lenders. This included people with disabilities, older people and single heads of households. Although the program was successful, it was too expensive to offer at scale.

An audience member asked who should pay for these services: NGOs; the government; or lenders, even if at the peril of higher interest rates? Mr. Milev said “you have to adapt your model to the context. In Viet Nam for example, which is mainly agricultural, there is an NGO offering technical and veterinarian services that we partner with…. If there is no NGO to partner with, I think it is the responsibility of the lender to find a way to provide these services. For example in Myanmar, there is a real lack of civil society partners.”

Mr. Sun said “government, networks and lenders all benefit. We need to see more of these players getting together to execute these services collectively.” For example in Singapore, a group trying to help older workers get re-trained has partnered with a university and asked employers to let new workers attend class one day per week during the first year of employment.

These efforts can pay off in a big way. Venkat EN, a partner at Aavishkaar, pointed out that serving poor people offers a large potential market, one that can grow as people move up the income ladder over time.

In anticipation of the recently announced Asia-Pacific Financial Inclusion Forum, which will be held in Hanoi, Viet Nam, on March 21 and March 22, 2017, MicroCapital is publishing this story as part of a series from the Banking with the Poor Network‘s Mekong Financial Inclusion Forum, which was held in July 2016. The Foundation for Development Cooperation engaged MicroCapital to assist in documenting the event.

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