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. * * * 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.

laundering. our particular responsibility relates to ais. it is our job to verify that ais have adequate policies, procedures and controls in place to enable them to : • identify suspicious customers and transactions ; • report suspicious transactions to the joint financial intelligence unit ( “ jfiu ” ) ; and • assist the law enforcement authorities through providing an audit trail. we do this through issuing guidelines that lay down the minimum standards that institutions should incorporate in their anti - money laundering systems. we then carry out on - site examinations to check that these standards are being adhered to. this year we introduced a two - tier, risk - based approach towards examinations. in cases where ais may be at higher risk of money laundering, we conduct more in - depth examinations using specialist teams. this may involve sample testing and visits to branches to look at how controls actually work in practice and to ascertain at first hand the knowledge and awareness of staff. in more routine cases, higher level review of anti - money laundering controls is conducted, generally as part of our normal risk - based examinations. we intend to supplement our own examinations with a system of self - assessment by compliance officers of ais on risk indicators of money laundering within their own institutions and the quality of controls. this will be done using a structured self - assessment framework that we aim to release to the industry later this year. this should help the hkma to conserve its own resources and direct them where they are most needed. but it should also serve to remind ais that they have the primary responsibility for making sure that their own house is in order. the hkma guideline checking that standards are being observed is obviously important. but it is necessary to ensure that the standards themselves remain effective in dealing with risks. that is why we are currently engaged in reviewing our anti - money laundering guideline. in doing so, we are making particular reference to two main sources. the first is the paper on customer due diligence for banks issued by the basel committee in october 2001. the other is the consultation paper released by the fatf in may of this year on its review of the fatf forty recommendations that set the international standards on anti - money laundering. i would strongly recommend that all ais familiarise themselves with both documents. comments on the fatf consultation paper are due by the end of this month. the process of revising the fatf recommendations will probably not be completed until some time next year. final revisions to our own guideline