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.

Financing SMEs in Global Value Chains

ADBI-AFDI-CAREC Institute
SME Development Conference, Session 1
2 November 2016, Shanghai, PRC

Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Sustainable Development and Climate Change Department
Asian Development Bank
This presentation was prepared under the authors responsibility. The views expressed here do not necessarily reflect
the views or policies of ADB, its Board of Directors, or the governments they represent. ADB does not guarantee the
accuracy of the data included in this presentation and accepts no responsibility for any consequences of their use.

Agenda
I.
II.
III.
IV.
V.
VI.
VII.
VIII.

SMEs in ADB Economies

Access to Finance
SME Finance Policies
Barriers to Financial Access
Funding Needs
Opportunities or Threats
SME Participation in Global Value Chains
Financing Models to Support SME Internationalization

SMEs in ADB Economies

Recent global economic slowdown requires a new growth model for Asia,
where SMEs play a key role in boosting national productivity.
CAM
MYA

100

SRI

75

MON

VIE

50
IND

LAO
25

KOR

BAN

PRC

KYR

Notes: Data in 2014 for CAM, KAZ [SMEs

to total and employees], and MYA [SMEs
to total]; data in 2013 for KYR, MON, IND,
INO, SRI, THA, PRC [SMEs to total], MAL
[employees and GDP contribution], and
KAZ [GDP contribution]; data in 2012 for
BAN, KOR, VIE, PHI [SMEs to total and
employees], and PRC [exports]; data in
2011 for PRC [employees]; data in 2010
for MAL [SMEs to total]; data in 2006 for
PHI [GDP contribution].
Source: Compilation from the ADB Asia
SME Finance Monitor 2014.

SMEs to total (%)

THA

PHI

SME employees to total (%)

SME Contribution to GDP (%)

INO

KAZ
MAL

SME exports to total (%)

Access to Finance - Bank Credit

Limited access to bank credit decelerates growth pace of SMEs.
SME Loans, 2014

SME Loans to Total Loans (%)

50

KOR

40

THA
30

SOL
20

BAN

INO
SRI MON
KAZ
IND
FIJ
PHI

10

PRC
MAL

PNG

0
0

10

20

30

SME Loans to GDP (%)

Source: ADB Asia SME Finance Monitor 2014.

40

50

Access to Finance - NBFIs

The nonbank finance industry is small in scale. 11.5% of bank loans.
NBFI Financing, 2014
NBFI Financing to Bank Loans (%)

100
90
80
70
60

TAJ

50
40

LAO, IND,
and MAL

30
20
10

MON

0
0

SOL
FIJ
BAN

PRC 2

KYR
CAM
INO
4

NBFI Financing to GDP (%)

Source: ADB Asia SME Finance Monitor 2014.

10

12

Access to Finance - Equity Finance

Although still in the trial stages, positive performances on SME equity markets
and government reform efforts have been seen in Asia.
SME Equity Markets
Market Capitalization (% of GDP)

% of GDP

Number of Listed Companies

Number
1,000

KOSDAQ/KOR

10.0
KOSDAQ/KOR

8.0

800
SME Board/PRC

SME Board/PRC
GEM/HKG

6.0

600

ChiNext/PRC

400

4.0
CATALIST/SIN

2.0

ChiNext/PRC
mai/THA
ACE/MAL

0.0

GEM/HKG

200

CATALIST/SIN
ACE/MAL
mai/THA
2014*

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

GDP = gross domestic product; SME = small and medium-sized enterprise. *Data as of 31 Oct for KOSDAQ, 28 Nov for ACE, and end-2014 for others.
Note: Emerging Asia comprises the Peoples Republic of China; Hong Kong, China; the Republic of Korea; Malaysia, Singapore, and Thailand.
Source: Authors calculation based on data from respective stock exchange websites and the ADB Asia SME Finance Monitor 2014.

SME Finance Policies

A balanced approach is required to design extensive policy measures for improving
SME access to finance and for safeguarding their financial stability.
National SME Finance Policies in Selected Asian Countries
Banking Sector
Nonbank Sector
Capital Markets
Public Sector
Refinancing Refinancing
MFI
Refinancing Public credit Mandatory Interest rate Public credit Secured
Direct
NBFI industry Equity market Bond market
Venture
Tax incentive
facility to
facility to development development development development
facility to
guarantee
lending to
subsidy
bureau
transaction
lending/
capital
for SME issuers
soft loans leasing firms factoring
program (except MFIs)
and/or
banks
scheme
MSMEs
law
for SMEs
for SMEs
development
firms
investors
for SMEs
Low-income
economies

TAJ
BAN

CAM

MYA
Lower-middle- KYR
income
MON
economies

IND

SRI

INO

(pawn business)

(TReDS)**

PHI

VIE

PNG

SOL

Upper-middle- PRC
income
KAZ
economies

MAL

THA

***

LAO

FIJ

High-income
KOR
economies

(credit unions)

(draft)

* Funded by private and public sectors. ** TReDS in India: Trade Receivables Discounting System for facilitating trade receivable finance for MSMEs,
proposed by the central bank. *** Mandatory creation of microfinance units in banks.
Source: ADB Asia SME Finance Monitor 2014.

Barriers to Financial Access

Collateral/guarantee requirements and high lending rates make a
hurdle for SMEs to raise necessary funds for growth.
Barriers to Accessing Financial Institutions
Collateral/
guarantee
SMEs'
insufficient
management

100%
80%

Lending
policy of FI

60%
40%

No demand
on SMEs

Complicated
procedures

20%
0%

Exclusive
lending
attitude of FI

SMEs' lack of
knowledge
Short loan
term
PHI
PRC

High lending
rate
KAZ
MAL

PNG
KOR

SRI
IND

Notes: Percentage as the share of SMEs that answered yes plus somewhat yes from five scale scores (yes, somewhat yes, neutral, somewhat no, and no)
about barriers to access finance. Valid samples: the Philippines (PHI): 63; Kazakhstan (KAZ): 98; Papua New Guinea (PNG): 19; Sri Lanka (SRI): 15;
Peoples Republic of China (PRC): 303; Malaysia (MAL): 60; Republic of Korea (KOR): 28; India (IND):40.
Source: Authors compilation.

Funding Needs
SMEs seek to access formal finance & diversified long-term funding instruments
for stable growth of business, diminishing informal finance dependency.
Funding Instruments
Present

Future

Bank loan

Bank loan

80%

80%

Own fund

Nonbank loan

Own fund
60%

60%

Venture
capital

40%

Equity finance

20%

0%

MFIs

Family,
relatives &
friends
Credit among
corporations

Informal loan
Public loan
program
PHI
PRC

KAZ
MAL

Venture
capital

40%

Equity finance

20%

Corporate
bond/
debenture

Nonbank loan

PNG
KOR

SRI
IND

0%

Corporate
bond/
debenture

MFIs

Family,
relatives &
friends
Credit among
corporations

Informal loan
Public loan
program
PHI
PRC

KAZ
MAL

PNG
KOR

SRI
IND

9
Notes: Present refers to funding instruments accessed while Future refers to funding instruments desired in the future. Percentage as the share of funding
instruments utilized and desired by SMEs to total number of surveyed SMEs by country. Valid samples: the Philippines (PHI): 63; Kazakhstan (KAZ): 98; Papua
New Guinea (PNG): 19; Sri Lanka (SRI): 15; Peoples Republic of China (PRC): 303; Malaysia (MAL): 60; Republic of Korea (KOR): 28; India (IND):40.
Source: Authors compilation.

Opportunities or Threats (1)

Productivity growth is slowing in developing Asia since the GFC.
FDI inflows to Asia creates opportunities for SMEs to increase productivity.

(%)
6

Labor Productivity Growth

(US$ million)
700,000

FDI Net Inflows in Asia and the

Pacific

600,000

500,000

4
400,000

3
300,000

2
200,000

100,000

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

World

Asia

Asia excl. Japan, India, and PRC

Source: ADB Regional Cooperation and Productivity Gains for All.

Key Facts. http://aric.adb.org/productivity4all

East Asia & Pacific (excluding high income)

East Asia & Pacific

Source: World Development Indicators, The World Bank.

BoP, current US$ million.

South Asia

10

Opportunities or Threats (2)

Digital banking customers will reach 1.7 billion by 2020 in Asia.
Digitization as a threat for traditional banking but an opportunity for banks
that respond.
SMEs using internet and other digital technologies will increase across Asia.
(Mckinsey&Company 2014)

Number of Potential Digital Banking Consumers

(mil. people)
1,800

1,700

1,600

2012

1,400

2020

1,200
1,000

900

800

670

600

450

400
200

380
170

100

200

150
60

0
IND

PRC, HKG &

TAP

JPN & KOR

ASEAN & AUS

Note: ASEAN includes Indonesia, Malaysia, Singapore, the Philippines, and Viet Nam.
Source: McKinsey&Company. 2014. Digital Banking in Asia.

Asia

11

Opportunities or Threats (3)

Use of national currencies could reduce dependence on US dollars in trade
settlement, and deepen trade and financial integration in Asia, where SME
exporters and importers would realize low-cost transactions.

Source: Lee and Park. 2014. Use of National Currencies for Trade Settlement in East Asia: A Proposal. ADBI Working Paper Series.
No.474. April.

12

SME Participation in Global Value Chains

Global value chain (GVC)
Value chain: full range of value-adding activities to bring a product or
service through different stages of production. GVC: a value chain that
operates in more than one economy. (APEC 2014)
GVCs have evolved and spread in many business sectors, e.g., agribusiness, automotive, electronics, and handicraft.

SMEs in GVCs
Material suppliers, parts and components suppliers, export-oriented
manufacturers, subcontractors with multinational large firms, distributors,
service sectors entering overseas markets, etc.
Benefits: increased competitiveness, product quality enhanced by
technology transfer, business expansion, and job creation.
Barriers: labor market rigidity & regulations across the country; non-tariff
barriers; poor infra for trade; SMEs inability to meet quality, standards,
specifications for products; managerial constraints; and insufficient
financial recourses.

13

SME Participation in Global Value Chains

Vertical Firm Linkage
SMEs
2nd-tier
supplier
Raw material suppliers:
steel, metals, plastic, glass,
rubber, textile, etc.

Large Firms
1st-tier
supplier
Parts and components
suppliers: electronics, tires,
seats, windows, etc.

Inputs
Raw
materials

Lead firm
(MNC)
Final assembly

Production
Half-finished
goods

Marketing

Sales
windows

Domestic
customers

Logistics

Exporters/
importers

Foreign
customers

Distribution
Finished
goods

Customers
Final product
(value added)

Branding

Horizontal Firm Linkage

SMEs
2nd-tier
supplier

1st-tier
supplier

Lead firm
(SME)

Packaging
/storage

Wholesaler/
retailer

Domestic
customers

Farmer
/producer

Processor

Artisan

Marketing
agents

Exporters/
importers

Foreign
customers

Source: Authors compilation.

14

SME Participation in Global Value Chains:

Improvements by Participating in GVCs

GVC firms has faced limited improvements on access to finance.
Funding environment for GVC firms needs to be improved by timely access to
appropriate financing options.
Improvements by Participating in GVCs
0%

20%

40%

60%

Sourcing of inputs and supplies

Production capacity and
technology
Networking within the value
chain
Sustainable production and
energy use
Access to finance

yes
somewhat yes

Business environment

Notes: Percentage as the share of SMEs that answered yes or somewhat yes from five scale scores (yes, somewhat
yes, neutral, somewhat no, and no) about their business improvements by participation in global value chains.
Valid samples: 45 SMEs involved in global value chains.
Source: Authors compilation.

15

SME Participation in Global Value Chains:

Trade Finance
56.4% of the SME respondents did not use trade financing instruments.
30.3% of SMEs utilized prepayment financing and 19.5% used account
receivables-backed financing for trade.
Trade Finance
0%

20%

40%

60%

Export receivables-backed financing

Inventory/warehouse receipt financing
Prepayment financing
Account receivables-backed financing
Factoring (traditional)
Reverse factoring
Forfaiting
Export credit insurance
Export credit guarantee
Exchange insurance/forward contracts
Currency options
Not Utilized
Notes: Percentage as the share of trade finance instruments utilized by SMEs to total number of surveyed SMEs.
Valid samples: 195 comprising the Philippines: 63; Kazakhstan: 98; Papua New Guinea: 19; and Sri Lanka: 15.
Source: Authors compilation.

16

SME Participation in Global Value Chains:

Policy Implications
Policy Intervention for SME Participation in GVCs
A. Demand Side
0%

20%

40%

B. Supply Side
60%

80%

0%

100%

Trade facilitation measures

Trade facilitation measures

Tax incentives for small suppliers

Tax incentives for small suppliers

Simple trade procedures

Simple trade procedures

Reforms of logistics and telecommunication

Reforms of logistics and telecommunication

Development of trade corridor

Development of trade corridor

Development of e-commerce

Development of e-commerce

Domestic infrastructure improvement (inc.

storage and energy)

Domestic infrastructure improvement (inc.

storage and energy)

Promotion policy for innovation

Promotion policy for innovation

Education and training for international

standards

Education and training for international

standards

Business cluster development

Business cluster development

Special economic zone (SEZ)

Special economic zone (SEZ)

Intellectual property protection

Intellectual property protection

Enforcement of competition law

Enforcement of competition law

Labor regulations

yes
somewhat yes

Labor regulations

Promotion of international standards and best

practices

Promotion of international standards and best

practices

Easing restrictions on foreign investment

Easing restrictions on foreign investment

Access to trade finance

Access to trade finance

Access to nonbank financing instruments (inc.

factoring and leasing)
Access to growth capital through innovative
financing models

Access to nonbank financing instruments (inc.

factoring and leasing)
Access to growth capital through innovative
financing models

20%

40%

60%

80%

100%

yes
somewhat yes

Notes: Percentage as the share of SMEs that answered yes or somewhat yes from five scale scores (yes, somewhat yes, neutral, somewhat no, and no) about
critical elements of policy measures to promote SME participation in global value chains.
Valid samples: (Demand side) 195 comprising the Philippines: 63; Kazakhstan: 98; Papua New Guinea: 19; and Sri Lanka: 15. (Supply side) 44 mainly
comprising government authorities responsible for SME development and financial institutions.
Source: Authors compilation.

17

Financing Models to Support SME Internationalization:

Public-Private Sector Collaboration and Digital Solution
SME recruiters

- Funded by the govt., bi-or

multilateral donor(s)

Banks
I
Venture capital

I. Growth capital financing to SMEs via partner

financial institutions & the Exercise Market
II. Capacity building programs via partner institutions
III. Connect SMEs with good business models to the
Exercise Market

Public APEX Fund

Invest

(SME Incubation Fund)

Regional
incubation
center/BDS

II
III

II
Promising SME pool
Selected/Prioritized
Businesses (seed/startup/early-stage firms)

III

I
Crowdfunding platform
management company

III
Exchange market

SRO-operated OTC

Exercise Market

B. SME incubation segment

Invest

Agri-business
Financial
return
Woman-led SME

Social enterprise

SME cluster

Financial
return
Financial
return
Financial
return

Fund 1
Invest
Fund 2
Invest
Fund 3
Invest
Fund 4
A. Crowdfunding segment

Investors (mainly
individuals/supporters
for the business)

18

Financing Models to Support SME Internationalization:

Currency Swap Trade Settlement
China-Korea Currency Swap Trade Settlement

PBOC

BOK
KRW

KRW / CNY
Currency Swap

CNY

PBOC A/C

BOK A/C

CNY

Korean
Bank

CNY

Chinese Bank
Payment Instruction

Repayment

CNY Loan

CNY

Commodity Import

Korean Importer

Chinese Exporter

Source: Extracted from the ADB presentation material LCY Trade Settlement in ASEAN+3 prepared by D. Park and I. Shin in the ABMI
Task Force Meeting, Myanmar, 27 February 2014.

19

References
Asia SME Finance Monitor 2014
[http://www.adb.org/publications/asia-sme-financemonitor-2014]

Integrating SMEs into Global Value Chains:

Challenges and Policy Actions in Asia
[http://www.adb.org/publications/integrating-smesglobal-value-chains]

20

Thank you for your attention.

For further questions:

Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Sustainable Development and Climate Change Department
Asian Development Bank
Email: sshinozaki@adb.org

21