Today, while SMEs are growing in significance in most emerging economies, SMEs remain under-represented in international trade, accounting for only one quarter to one third of manufactured exports and a very small share of foreign direct investment. By comparison, SMEs in the developed economies contribute about 50% of total value added. For SMEs that become increasingly knowledge based and technologically advanced, the opportunities exist to participate in international strategic alliances, to connect into global and regional supply chains, and to be part of a production network. These arrangements will require a transformation of existing business models, management and technological capability, and the innovative capacity of the SMEs. It will need to involve increased access to financial resources, collective research efforts, accelerated product development and wider distribution channels. The ability of SMEs to realise this potential depends critically on providing the necessary infrastructure and enabling environment for SMEs to enhance their capacity and capability to effectively participate and expand in the domestic economy and to venture into the international markets. The financial sector and Government support are an essential part of this enabling environment for SME development. Repositioning of the financial industry to meet the new demands of SMEs Banks are the dominant providers of financial services to SMEs. In the recent period, considerable advances have been made among APEC economies towards strengthening the scope and access to financial services to the SMEs.

The philosophy of prevention: assist banks to govern themselves In developing regulations and practices that help to prevent financial crisis, supervisors must not lose sight of the inherent self-interest that banks have to retain the public’s confidence by maintaining safe and sound operations. No responsible firm seeks to fail, and no responsible bank would willingly engage in practices that would cause the market to doubt its long-term viability. Consequently, our role as regulators is not to limit banks’ opportunities for growth and profit. Instead, it is to help banks to improve continuously their abilities to manage their businesses and their risks, thereby ensuring that, across the financial system, banks can maintain their financial health. At the same time, if we are to encourage responsible behavior, we must not create the illusion that we will rescue every institution that does not succeed. In this regard, you will recall Goethe’s view: "What government is the best? That which teaches us to govern ourselves." Similarly, one of the best ways for supervisors to carry out the duty of prevention is by developing regulatory structures that encourage banks and their managers to govern themselves and control their risks. I believe that three important elements in a supervisory structure can help to create such incentives and thereby promote stability. The first consists of the relatively new "risk-focused" approach to bank supervision that is being adopted in financial centers around the world. It embodies a forward-looking perspective focusing most heavily on the risks that each individual bank faces.