Unleashing Small and Medium-sized Enterprises in Asia and the Pacific: ADB Evaluation
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Poor access to finance and a difficult business environment are holding back Asia and the Pacific's small and medium-sized enterprises (SMEs) from contributing to the creation of economic wealth for development. An evaluation by the Asian Development Bank's (ADB) Independent Evaluation Department sheds a useful light on how governments and their development partners can remove these barriers to unleash the development potential of SMEs in the region.
ADB estimates that SMEs make up about 60% of national labor forces in Asia and the Pacific. Many countries in the region define small enterprises as those with 10 to 49�99 employees and medium-sized enterprises as those with 50 to 250�300 employees. The evaluation highlights many challenges and the mixed progress that governments and development institutions are experiencing in their efforts to advance SMEs.
Governments are trying to create better operating conditions for SMEs, but not enough progress is being made in removing the many barriers preventing them from fully participating in market activities, to the detriment of economic growth and social development, said Director General of Independent Evaluation at ADB Mr. Marvin Taylor-Dormond.
An approach to address systemic constraints faced by SMEs, including a poor business environment and financial infrastructure, would be more effective and sustained than just providing credit lines to financial intermediaries for loans to SMEs, said Mr. Taylor-Dormond.
The evaluation assessed 182 ADB operations with a total financing of $5.3 billion supporting SMEs in 25 countries in Asia and the Pacific from 2005 to 2017. As well as access to finance, which accounted for 70% of operations, ADB-financed projects and programs for improving the business environment for SMEs and their access to producer networks, and for increasing the number of SMEs owned and run by women.
A shortcoming in ADB's access-to-finance operations was their focus on providing credit lines to commercial banks for onlending to a selection of SMEs, which often took the form of largely standard loans already offered by these banks. Often, more established enterprises benefited more than the core of underserved SMEs that struggle to get credit because of collateral requirements and the perception of a high risk of failure to repay.
ADB needs to pay more attention to the developmental impact in its support for increasing SMEs' access to finance, said Mr. Binh Nguyen, the evaluation's lead author. Bringing finance to underserved SMEs and creating reliable clients can demonstrate the sector's viability to skeptical banks and have more long-term development results.
Although it was not the bulk of its operations, ADB was more successful in its efforts to improve the business environment. Here, its operations focused on working with governments to reduce the cost of doing business for SMEs, and to simplify procedures to make it easier to register a business. With ADB support, improvements were made in the policy and legal frameworks in Armenia, Bhutan, Cambodia, the Lao People's Democratic Republic, and Viet Nam. A drawback of this support was that less attention was paid to helping build the capacity in governments to carry out and sustain business environment reforms.
ADB is making a significant effort to advance SMEs led by women to promote gender equality. In South Asia, for example, the share of formal SMEs owned by women is less than 10%. The evaluation found that ADB support had good results when it helped improve the policy environment for women-led SMEs, as it did in Viet Nam where it contributed to the formulation of the country's 2017 SME law. Good results were also found when ADB financed capacity-building projects that helped women expand their businesses, as it did in Armenia, Bangladesh, and Uzbekistan. Results were less positive when the focus was on providing credit or when there was a lack of support services for developing SMEs, as was the case in India and Pakistan.
Source: Asian Development Bank