Issue Brief: Unleashing SMEs to Drive Jobs and Growth: Beyond Financing

• Small and medium sized enterprises (SMEs) are the key to employment and innovation in Asia, but they are often starved of credit, information and support services. Over 90 per cent of companies in Asia are SMEs and they contribute to over 60 per cent of GDP, and more than two-thirds of employment and most innovations. As Asia seeks to transition to a new era of growth, correcting these weaknesses will often determine success or failure.
• SMEs are hindered not just by a lack of financing, but also by serious non-financial constraints, such as insufficient skills and technology, high transaction costs, poorly defined property rights, inadequate market access and poor coordination of government SME support.
• Asia needs to promote SME development in a more holistic manner, with closer public-private collaboration to create a supportive and technology-enabled ecosystem for SMEs to thrive:
  • Government
    • Provide a one-stop agency for SME development
    • Establish standardized systems to improve information databases and create integrated payments and Internet retail trading platforms for SMEs
  • Financial Sector
    • Offer both equity and debt financing options, and capitalize on supply chain finance to improve credit availability
    • Develop new business models by leveraging on new technologies
  • Business Sector and Chambers of Commerce
    • Provide mentoring and guidance on marketing and distribution to SMEs
    • Improve understanding of how to link with global supply chains
  • Educational Sector and Academia
    • Design curricula, vocational training and apprenticeship programs to develop the right skills for SMEs
    • Participate in periodic joint review and feedback work on the effectiveness of SME programs for innovation, job creation, exports and national competitiveness

A jobless recovery is the biggest threat to social stability worldwide. Across economies, SMEs are a major source of job creation and growth. In 2010, SMEs accounted for more than 60 per cent of GDP and provided more than 90 per cent of employment in both developing and advanced economies. The promotion of a strong SME sector is key to growth, innovation and jobs - and job creation is the most effective route to poverty alleviation. Removal of supply-side barriers to SME development is a necessary but not sufficient condition for success. SME growth also depends on demand-side policy measures that enhance domestic consumption through product innovation.

Disclaimer: The views expressed in this report are those of the author and do not necessarily reflect those of the Fung Global Institute. The author is solely responsible for any errors or omissions.