The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute (ADBI), the Asian
Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no
responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Finance vs. Other Constraints

Facing SMEs in Asia
Paul Vandenberg
Senior CBT Economist
ADBI, Tokyo

SME promotion
SMEs are an important part of any economy in terms of
output and employment
98% of enterprises, 66% of labor force, 38% of GDP and
30% of exports on average 2007-2012 in Asia (ADB 2014)

How to promote the development of competitive,

highly productive, growth-oriented SMEs
Need to understand their major constraints
This workshop focuses on finance as a constraint
How important is it relative to other constraints facing
SMEs in Asia?

Evidence
How to judge how important the constraint is
Two approaches
Levels of access to different types of finance
Survey responses

Enterprise owners feeling of finances importance as a

constraint
Perception survey responses

Both provided by World Bank/IFC Enterprise Surveys

About 500-1,000 enterprises surveyed in each country

Small (5-19 workers); Medium (20-99 workers)
Not every year
Ranges from 2006 (India) to 2014 (Myanmar)

30 countries surveyed (and year)

East and SE Asia
PRC
2012
Mongolia
2013
Cambodia
2007
Lao PDR
2012
Myanmar
2014
Malaysia
2007
Philippines 2009
Viet Nam
2009
Indonesia
2009

South Asia
India
Pakistan
Bangladesh
Sri Lanka
Bhutan
Nepal
Pacific
Fiji
F.S. Microne
Timor-Leste
Tonga
Vanuatu
Samoa

2006
2007
2013
2011
2009
2013
2009
2009
2009
2009
2009
2009

Central Asia
Afghanistan
Armenia
Azerbaijan
Kazakhstan
Kosovo
Tajikistan
Kyrgyz Rep.
Turkey
Uzbekistan

2014
2013
2013
2013
2013
2008
2013
2008
2008

15 Possible SME constraints

(As suggested to enterprises surveyed)

Political stability

Access to finance

Corruption

Transportation

Crime, theft and disorder

Electricity

Courts

Access to land

Tax rates

Inadequately educated workforce

Tax administration

Labour regulations

Business licensing and permits

Practices of the informal sector

Customs and trade regulations

Overall country rank

of Access to
Finance as the key
constraint among 15
possible SME
constraints

No. of countries at given ranking levels

for the 3 enterprise sizes
Small
enterprises

Medium
enterprises

Large
enterprises

1st to 3rd

10

11

4th to 6th

10

7th to 10th

11th to 15th

Total countries

30

30

26

Summary
Finance as constraint across Asia
Small enterprises and medium enterprises
tend to rank access to finance as a major
constraint in approximately the same number
of countries in our sample of 30 countries
Finance considered a constraint for large
enterprises (100+ workers) but less likely to be
the main constraint.

Regional breakdown
Number of countries where finance was a Top 3
constraint among small enterprises:
E and SE Asia
South Asia
Central Asia
Pacific

6/9 countries
3/6
1/9
0/6

No. 1: Bhutan, Indonesia, Myanmar, Viet Nam

No. 2: Philippines, PRC, Sri Lanka, Azerbaijan
No. 3: Lao PDR, Bangladesh,

Regional breakdown
Number of countries where finance was a Top 3
constraint among medium enterprises:

East and SE Asia

South Asia
Central Asia
Pacific
1/6

6/9 countries
2/6
2/9

No. 1: Azerbaijan, Bhutan, PRC, Indonesia, Viet Nam

No. 2: Afghanistan, Fiji
No. 3: Bangladesh, Lao PDR, Myanmar, Philippines

Summary Regional differences

Finance a major constraint in East and
Southeast Asia
Middling constraint in South Asia
Not considered a main constraint in most of
Central and West Asia and Pacific Region

Finance vs. other constraints

SMEs may face a range of constraints to
sustain and growth their businesses
Is our assumption of the importance of
finance relative to other constraints justified?
Finance may be of equal importance across
countries or regions but may appear as less
important (from survey results) because some
regions have more problems in other areas
infrastructure, regulations, political environment

Finance vs other constraints

(% of small enterprises marking it as greatest constraint)

First: pink

Second: green

Third: yellow

Finance vs other constraints

(% of medium enterprises marking it as greatest constraint)

First: pink

Second: green

Third: yellow

Summary of other constraints

Finance is a top constraint in East and Southeast Asia
and to some extent for small enterprises in South Asia

Other constraints dominate in other regions (Central Asia and the

Pacific where finance not among the top five constraints
Small and Medium

Political instability in Central Asia and Pacific

Electricity and lack of skilled workers in South Asia
Corruption, licensing, tax administration also important

Not so important

Transport, courts, labour regulations, crime and theft, access to land

For small enterprises: customs/trade regulations and tax rates not
such a concern
For medium enterprises: customs/trade regulations and tax rates
more important

Methods of finance
Significant reliance on internal funds for
investments especially for countries at lower
level of development and less developed
financial systems
Bank access varies
Working capital an important financial need
and provided through banks and supplier
credit

% of Small Enterprise Investments

Financed Internally
120.0
100.0
80.0
60.0
40.0
20.0
0.0

% of Medium Enterprises Investments

Financed Internally
120.0

100.0

80.0

60.0

40.0

20.0

0.0

% of Small Enterprises
Using Banks to Finance Investments
80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

% of Medium Enterprises
Using Banks to Finance investments
60.0

50.0

40.0

30.0

20.0

10.0

0.0

Sources of Working Capital - Small

40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

% of Small Enterprises' Working Capital Financed by Banks

% of Small Enterprises' Working Capital Financed by Supplier Creidt

% of Medium Enterprises' Working Capital Supplied by Banks

% of Medium Enterprises' Working Capital Financed by

Supplied Credit
Uzbekistan

Turkey

Tajikistan

Kyrgyz Republic

Kosovo

Kazakhstan

Azerbaijan

Armenia

Afghanistan

Samoa

Vanuatu

Tonga

Timor-Leste

F. S. of Micronesia

Fiji

Nepal

Sri Lanka

Bangladesh

Pakistan

India

Bhutan

Republic of Korea

Mongolia

PRC

Viet Nam

Thailand

Philippines

Myanmar

Malaysia

Lao PDR

Indonesia

Cambodia

Sources of Working Capital - Medium

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Not wanting finance

Need to remember that not all SMEs want to
borrow from banks
May not be growth oriented
May rely on internal funds or other sources

% of Small Enterprises
Not Needing a Loan
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

% of Medium Enterprises
Not Needing a Loan
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

Thank You

Paul Vandenberg
ADBI, Tokyo
pvandenberg@adbi.org