Peter Pang: The role of SMEs in Asian development
Statement by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority
and Head of Delegation, Hong Kong, China, at the 41st Asian Development Bank Annual
Meeting, Madrid, 5-6 May 2008.
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Let me first thank the Government of Spain and the people of Madrid for their warm
hospitality. I welcome the successful conclusion of the ADF X negotiations ahead of this
meeting, providing timely and critical resources to the ADB to further its work in poverty
reduction in Asia.
The remarkable development of the region over the past decade has significantly improved
the lives of its people. Yet, eradicating poverty remains a huge challenge, and the rapid
economic growth has brought about a new set of development issues. We therefore
welcome the extensive review of the Bank's Long-Term Strategic Framework over the past
two years to identify the new challenges faced by the region and the launch of Strategy 2020
to guide the Bank's work in the next decade.
I am glad to see that Strategy 2020 correctly puts a greater focus on the sustainability
aspects of growth as Asia enters the next stage of development. Among other priorities, I am
also happy to note more emphasis being given to private sector development and private
sector operations. Enabling the private sector with firms investing, creating jobs and
improving productivity is crucial to sustaining the long-term economic growth and expanding
opportunities for the poor. In this regard, supporting the development of a vibrant small and
medium enterprises (SMEs) sector will be of particular importance.
SMEs play a vital role in the economic growth of developing countries, typically accounting
for over 90% of business establishments and about half or more of output and export shares.
Their entrepreneurship, flexibility and responsiveness to change are essential driving force of
economic development. The employment opportunities they create improve the livelihood of
thousands of millions of poor people. In many developing countries, and in fact in developed
economies as well, SMEs account for as much as 70% of the labor force.
Despite the important role of SMEs in the economy, their growth is often constrained by the
lack of capital, among other impediments such as regulatory red tape. Their small size, lack
of credit ratings and the generally underdeveloped capital markets in the region deny SMEs
access to bond and equity financing. Banks are also reluctant to lend to SMEs or charge
them a high interest rate, since SMEs usually do not have strong credit history and cannot
provide substantial collateral.
Making available SME financing at reasonable cost is therefore crucial to the growth of this
important sector. Providing policy loans directly to SMEs helps, but the assistance is limited
relative to the enormous financing needs and there are always concerns about economic
distortions and the efficient use of public resources. To achieve greater and more sustainable
SME financing, it is necessary to develop market-based approaches which are commercially
viable to mobilise private sector investment into the SME sector. I encourage the ADB to
further work on this front, including exploring possible mechanisms such as credit
enhancement and securitisation. Scaling up private sector lending would require a change in
the skill mix of the ADB, in particular in strengthening its market expertise and risk
management. Partnering with domestic agencies and private sector financial institutions,
other international financial institutions and developed members in the region that have
relevant experience would be useful in utilising their expertise, building the capacity of the
Bank, and sharing credit risk.
There are, of course, other important areas concerning the development of the region where
the ADB could play a meaningful role as identified in the new Long-Term Strategic
Framework. As a member of the Bank and the region, we stand ready to provide support and
look forward to strengthening our cooperation with the ADB in furthering the development
agenda of the region. And lastly, to successfully implement Strategy 2020, further enhancing
the organisational effectiveness of the ADB will be of critical importance. We welcome the
Bank's commitment to develop a more robust results framework and to continue its
institutional reforms, and we look forward to ongoing efforts by the Bank in this regard.
Thank you.