Loi M Bakani: Creating a favourable environment for innovative Credit
Supplementation Institutions (CSI) in the Asian region
Keynote address by Mr Loi M Bakani, Deputy Governor of the Bank of Papua New Guinea, at the
16th Asian Credit Supplementation Institutions Training Programme, Port Moresby,
13-14 September 2006.
* * *
Introduction
Distinguished guests, participants, observers, ladies and gentlemen, thank you for inviting me to
address the 16th Asian Credit Supplementation Institutions Confederation Training Programme.
I am informed that it is the first time that such training is held in Papua New Guinea. I am thankful to
the organisers for selecting Papua New Guinea as the host of this year's training programme, and it's
a challenge for the Small Business Development Corporation (SBDC) to ensure a successful hosting
of the training programme.
The programme comprising of lectures and workshops, will run for two (2) days. Most of you are in our
country for the first time, and the organizers have been kind enough to include extra days for visits to
the National Museum and the National Parliament. A special arrangement was made for the
participants to see the popular Hiri Moale Festival and 31st Independence Anniversary celebrations. I
extend our warmest welcome to you all and hope you will enjoy your stay in our capital city, Port
Moresby and see some of our diverse cultures and traditions.
The training theme "Creating a Favourable Environment for Innovative Credit Supplementation
Institutions in the Asian Region" is an exciting one. Under this main theme, the scope of the workshop
has been broadened to include presenters to share their expert views and knowledge on related
subject matters, including:
•
Impact of Globalisation on Small and Medium Enterprises credit in the Asian Region;
•
Innovative Policies and Practices of Credit Supplementation Institutions in the Asian Region;
and
•
Financing Small and Medium Enterprises through Credit Guarantee Schemes.
The above sub-themes of the workshop are included to provide an objective and comprehensive
coverage of the global issues impacting on the growth of the small and medium enterprises in some
parts of the Asia-Pacific region and lack of progress in the other parts of the region.
To start the discussions on the above sub-themes, let us look at a number of critical problems and
issues affecting the advancement of small and medium enterprises in the wake of globalisation. These
include, but are not limited to: small and medium enterprises policy and implementation; regulatory
framework; entrepreneurial/managerial skills; finance; technology and information resources.
Impact of globalisation on small and medium enterprises credit in the Asian region
Globalisation can be simply understood as the way in which the world has become a small 'village' or
'community' as a result of faster transport, communication and technological advancement which in
turn resulted in the reduction in the cost of international trade, investment and in doing business (time
and space/distance) between places and people.
The Asia-Pacific region is part of this globalisation process, which has influenced the pace of growth
and patterns in the region over the past decades. Today we see vibrant and strong economies that are
in the forefront of influencing the globalisation process itself through increased world trading, capital
transfers and investments, skilled labour movements, and technological innovations and their use.
There are many that argue, including those in our region, that globalisation has very limited impact on
small and medium enterprises in the developing countries compared to those in the developed
economies. There are also those who critically argue that globalisation has disadvantaged the small
and medium enterprises in countries that do not have appropriate policy framework, regulations,
entrepreneurial and managerial skills, finance and technology necessary for competition and survival.
Although this view has some merit, the reality about globalisation is that, among other positive
changes, it eased capital transfers which provided for relatively easier access to funds by credit and
supplementation institutions for on-lending to small and medium enterprises in the Asia-Pacific region.
As international trade and investments increase, this trend is likely to continue and grow.
Innovative policies and practices of Credit Supplementation Institutions in the Asian region
One of the major challenges to foster growth and sustainability, particularly in the developing
economies, is the design and implementation of appropriate policies on developing small and medium
enterprises. In economies where sound policies are in place, the problem may be due to the failure by
the government to seriously ensure that those policies are implemented. As most small and medium
enterprises in the developing economies do not have comparative advantage compared to large
established companies, any attempts to capture niche markets, domestic as well as international,
would be difficult unless appropriate government policies are in place and are effectively implemented
to provide relief, particularly in the 'infant' stages of their growth cycle.
Observations from other economies, including Japan, China and Republic of Korea showed that these
countries have done very well because of their governments' policies and focus on encouraging small
and medium enterprises to contribute towards economic growth. These are experiences worth noting
and studying.
Regulation of small and medium enterprises
Small and medium enterprises in most countries do not have a specific legal framework to regulate
their activities as most governments share the view that too much regulations and unnecessary
interference may impact negatively on normal commercial operations. However, small and medium
enterprises are expected to abide by all other relevant laws and regulations, including taxation law.
This is a subject of contention and therefore I would rather leave it for you to exchange views on it.
Financing small and medium enterprises through credit guarantee schemes
Amidst all the constraints facing small and medium enterprises, lack of finance or access to finance
appears to be one of the main drawbacks for growth and competitiveness. This is a global problem,
and we see that in the Asia-Pacific region as well.
In some countries of our region, there have been initiatives to create avenues for small and medium
enterprises to obtain credit without excessive scrutiny or discrimination by financiers or credit
providers. This is done with the backing of governments by enabling the establishment of financial
institutions that accommodate and target small and medium enterprises. In economies where the
supply of credit is limited, linkage with banks and credit supplementation institutions is the solution. In
the case of Papua New Guinea, there are relatively limited credit and supplementation institutions and
financial institutions that are willing to provide credit to small and medium enterprises. The problem is
even harder for the government-funded credit and supplementation institutions like the Rural
Development Bank to meet these credit needs because of the limited annual appropriation in the
budget for this purpose.
Management skills, information technology and information resources
Apart from finance and other constraints lack of or inadequate managerial skills of
entrepreneurs/owners of small and medium enterprises can be a negative factor that can lead to their
lack of competitiveness and operational sustainability. Financial institutions or credit and
supplementation institutions may be willing to grant credit, but the risk associated with lack of
knowledge and skills required to run a successful small and medium enterprises can be the influencing
factor that prevents the extension of credit.
Further, lack of government support to institutions that are established to train and nurture aspiring
businessmen and women are not being offered sufficient financial resources in the annual budget. In
Papua New Guinea, the Small Business Development Corporation experiences the same problem.
Hopefully, the success of this training workshop will be an eye opener for the government to
strengthen the capacity of the Corporation to take on more future challenges to assist small and
medium enterprises in the country.
Technology and information resources
The globalisation process has made the world a 'smaller' place. We see the economies of the world
becoming integrated more closely. Catalysts in the process, among others, are advancement of
technology and hence availability of information resource that enables sound business decisions to be
made across countries in a timely manner.
Every business manager knows that regardless of the size of your business, use of and reliance on
technology to produce information upon which business decisions are made is a crucial part of
operating a successful business, whether they are small and medium enterprises or a large
corporation.
Papua New Guinea's experience
The Government of Papua New Guinea had developed a number of policy papers including, Small
Medium Term Development Strategies (MTDS), National Dialog
and Medium Enterprises Policy, the
and Microfinance Policy. In these policy papers, the Government had expressed the important roles of
small and medium enterprises as contributors to the long-term sustainable development of the private
sector and economic growth of the country.
Like in most countries, small and medium enterprises in Papua New Guinea are not regulated,
however, they are required to operate in compliance with the relevant laws of the country including
taxation requirements. In order for the small and medium enterprises to be successful, adequate
government support through agencies tasked with this function need to be enhanced. This would
ensure that the small & medium enterprises develop beyond their infant stages and reach
selfsustainable levels.
Finance
There are relatively limited credit and supplementation institutions and financial institutions that are
willing to provide credit to small and medium enterprises in the country. The problem is even harder for
the Government-funded credit and supplementation institutions like the Rural Development Bank to
meet their credit needs because of the limited annual budget appropriation. The development of the
microfinance sector through the PNG-ADB Microfinance and Employment Project is an extension of
the options that the government wanted to pursue, through the Microfinance Policy, to extend credit to
those in the informal and semi-formal sectors.
Credit guarantee and facility schemes
Credit guarantee schemes seemed to have limited success in Papua New Guinea's situation, perhaps
partly because such schemes are not fully appreciated and understood. The problem also extends to
include the government or its institutions that provide guarantees to small and medium enterprises
where in most cases such guarantees are not honoured, giving rise to other issues (e.g. Prudential
Supervision).
Papua New Guinea's problem appears to do with perception and expectations. For instance, where a
guarantee is provided based on political associations and constituency, those who benefit from the
credit facility may feel less inclined to repay the credit because they perceive such service by the
government or their political leaders as a compensatory factor in return for their votes. There are
countless cases that can be shared from the experience of Papua New Guinea Banking Corporation -
a former government-owned commercial bank and similar experiences in our Rural Development
Bank.
Papua New Guinea also had experiences of other credit facilities, one of which was the "small Scale
Business Credit Facility" funded by the SBDC, participating commercial banks and the Central Bank.
The portion of funding (one-third) by commercial banks was fully guaranteed by the other participants.
Due to high defaults the facility was closed several years ago. Another credit facility was the Global
Loan Facility (GLF) of K12.0 million provided by the European Investment Bank (EIB) in 1991 that was
fully guaranteed by the PNG Government. Due to various problems including lengthy and stringent
process to access credit, the facility was not fully utilised and the European Investment Bank withdrew
the scheme in 1998.
Conclusion
To conclude, we all should remind ourselves that the accelerated pace at which the world is changing
is presenting many challenges for small and medium enterprises in the Asia-Pacific region. Small and
medium enterprises in our region, as well as in other parts of the world, have similar features and are
confronted by similar problems such as the lack of:
•
Finance;
•
entrepreneurial/managerial skills;
•
access to appropriate technology and information systems; and
• appropriate policy and guidelines.
As practitioners, you are all no doubt better placed to share your views and experiences on how to
solve the problems that deny growth, fair competition and survival of small and medium enterprises in
this new era of globalisation. However, it is better to embrace change and grow with it, and take
advantage of globalisation and benefit from the positive impact it can have.
Finally, I trust that the training programme will be rewarding for you all as you share each other's
knowledge and experiences, and endeavour to find answers to some of the constraints faced by small
and medium enterprises problems in our region.
I wish you every success in your deliberations over the next 2 days. For our overseas participants, I
hope that you will enjoy your stay with us and the fact that you are here during our 31st Independence
day celebrations, when we display our rich cultural heritage and diverse traditions makes us very
happy to be your host.
Thank you.