Thailand's SME Strategy
Business Options
The functionality of the guarantee approach towards improving SME access to bank financing has been emphasized once more when the Asian Credit Supplementation Institution Confederation or ACSIC held its yearly conference in Chiang Mai, Thailand. The ACSIC is an aggrupation of the guarantee corporations of Japan, South Korea, Malaysia, Thailand, Taiwan, Nepal, Taiwan, Indonesia, Sri Lanka, Papua New Guinea, and the Philippines. As of this writing, and with the deactivation of GFSME, the Small Business Guarantee and Finance Corporation (SBGFC) is the sole Philippine member of this grouping.
Despite the difficult situation almost all nations find themselves in, there has been no doubt in the minds of conference participants that credit guarantees will continue to play a very important role in supporting SMEs. But guarantees alone will be insufficient. So in almost every economy, a package of support for SMEs has to be put in place.
The Thailand program has identified SMEs as candidates for economic recovery and for developing a strong economic resiliency. For these reasons, a comprehensive scheme for the development of SMEs has been set up, including training, advisory services, marketing and sale assistance, and financial assistance.
In the finance arena, four groups of measure have been implemented: the equity financing scheme, the debt financing scheme, the credit guarantee scheme and financial consultation.
To enhance the long term competitiveness of the private sector, equity financing for SMEs has been enhanced through the establishment of two institutions – the Mutual Fund for SMEs and the Thai Recovery Fund. The MFS has an initial 1 billion baht funding and will invest in equity of suitable SMEs with long term objectives of improving their business capabilities and efficiency in preparation for entering the capital market.
The Thai Recovery Fund is a collaboration with the Asian Development Bank, the Japan Bank for International Cooperation, the KFW and State Street Corporation as lead investors. The projected capital is US$85 million, with an initial commitment of US$50 M. The Fund will invest in small and medium sized Thai companies that are in the process of restructuring their operations or needing expansion capital.
On the financing problems faced by the SMEs, the government is establishing an SME Development Bank of Thailand by revising the charter of the Small Industry Finance Corporation. The SME Development Bank will be able to receive deposits and provide SMEs credits, investments advisory services and other services. It will also be allowed to issue financial instruments, purchase, discount and sell or transfer financial instruments. It will engage in foreign currency transaction for SMEs.
To support lending to SMEs at the grass root level, the government established the People Bank within the Government Savings Bank. The People Bank will serve people in the grass roots level who want to invest, improve or start up their business. A unique feature of the People Bank is it intends to fix interest rates on loans at 1% per month.
For credit guarantees, Thailand has the Small Industry Credit Guarantee Corporation (SICGC). It offers two main types of guarantees. One is dedicated to provide guarantees on the non-collateralized portion of the loan. The other is a credit risk participation scheme designed to share on a 50/50 basis the benefits as well as losses of the banks. While SICGC was capitalized at only 400 million baht in 1992 upon inception, the Asian regional crisis actually motivated the Thai government to infuse 4 billion baht into the corporation in 2000. Clearly, this is one circumstance where the government's support is beyond mere lip service.
Finally, SME and People Financial Advisory Centers (SFAC) have been created to provide finance advice to business and individuals. The aim of the one-stop-shop is to coordinate an information and "sign-posting" service which directs clients to useful contacts for further information, in a single location. The areas of advice include debt restructuring processes, fund raising for expanding current operations and new investments, general financial and accounting advise. There are 39 branch offices all over Thailand and an interactive website. In addition, the Ministry of Finance will set-up Specialized Financial Institutions (SFIs) to provide full financial service advice, especially for SMEs.
Do we have the same kind of support system for Philippine SMEs? This is a question that is worth raising considering that the Thailand situation is very close to the make up of the Philippine economy. There was a time, for example, when the Philippine peso was just at par with the Thai baht. It is easy to recall that Thailand was harder hit by the regional crisis compared to the Philippines, initially.
Our SMEs deserve a lot of support not just by way of policy pronouncement but more in terms of resource allocation. We have to benchmark against our regional neighbors and see whether we are doing enough for this sector. Let's put our money where our mouth is.