Set up MSME bank, please

May 11, 2015
(Click The STAR Online for original post)

Asean Business Advisory Council chairman Tan Sri Dr Munir Majid says Asean must establish a regional bank for micro, small and medium enterprises, reports LIM WING HOOI.

A regional bank catering to micro, small and medium-sized enterprises (MSMEs) in Asean should be formed to address a longstanding need, said Asean Business Advisory Council (Asean-BAC) chairman Tan Sri Dr Munir Majid.

Access to capital was one of the most vital elements for businesses, he said, stressing that “finance is the lifeblood of the economy.”

Speaking to SMEBiz after a press conference on April 30 in Shangri La Hotel Kuala Lumpur on the Asean-BAC report submitted to Asean leaders during the recently concluded 26th Asean Summit, he said having specialists from the financial and capital markets embedded in the Asean Secretariat would help quicken the pace of facilitating financial proposals, including on the formation of the MSME Bank.

Stressing that MSMEs were the backbone of the Asean economy, Munir said “a fracture of this backbone – of the MSMEs – would trigger a protectionist surge which would roll back most of the initiatives to promote regional trade and investment.”

“This would give rise to unemployment problems as over 90% of the business establishments in the Asean region are MSMEs. (Unfortunately) some of the non-tariff barriers are intended to protect them. (The irony is that) big companies could circumvent these barriers while MSMEs are not able to,” he said.

Munir also emphasised that the conventional approach of just lending MSMEs money or offering trade finance facilities was not enough to facilitate growth.

“We are already advocating that MSMEs adopt modern management approach, with proper accounting and corporate governance. They should also look at merging with Asean counterparts to grow their market share,” he said.

He added that a wider market would make MSMEs more resilient to market fluctuations. Without change, many MSME would end up becoming mere “mom-and-pop shop” in two decades or so, and prone to market disruptions.

The financial products offered should be sophisticated and go beyond plain vanilla financing facilities, Munir suggested.

“As we modernise and develop the MSMEs, they should also be offered a variety of investment banking and structured products,” he said

Products offered could include the setting up of MSME private equity funds, MSME private debt funds, the listing of MSMEs and offers of convertible bonds or even perpetual sukuk.

“There are huge pools of savings in Asean and Asia as a whole that are looking for safe return and good growth, which often are spirited out of the region (only) to come back as foreign investment. Indeed, there are also actual foreign investors waiting to come into the region’s high growth areas,” he added.

The MSME Bank could also offer micro-finance and organise crowd-funding. The proposed Asean MSME Bank could therefore offer a plethora of financial products and, in return, could consider taking equity stakes in MSMEs where appropriate and profitable.

“The Asean MSME Bank I have in mind will operate on a commercial basis with professionals, and holding to the highest standards of governance and accountability. Obviously it will have to be licensed in some Asean jurisdiction. Those countries whose MSMEs might want to profit from the bank’s operations will have to enter into some agreement with that jurisdictional authority,” he added.

Who would put up the capital for this initiative?

Munir said it was not realistic to expect Asean governments to put up money from their public funds alone.

“The main emphasis should be on the realisation of a capital base substantial enough for it to be credible. If you think strategically – about this third force called Asean, about the MSMEs that form the backbone of that economy, about bigger powers trying to gain a strong foothold – there should be public funds that might become available, apart from well-known promoters in the investment fraternity who are aware of the potential of the MSMEs,” he said.

He added that care should also be taken to ensure that a quarterly report be made on all applications for financial facilities by the MSMEs, with particular emphasis on the reasons why failed applications had been rejected.

The MSME bank initiative was first presented as part of a larger initiative to ensure a sustainable financial support system for Asean Economic Community (AEC) integration when Munir was appointed to the council in February 2014.

Since then, these recommendations were communicated at various ASEAN-BAC engagements, including meetings with Asean Finance and Central Bank Deputies in early 2015.