Lending roadblocks a bane for majority of SMEs in Asean

SINGAPORE, 10 March 2022 — More than two thirds (68%) of small and medium sized enterprises (SMEs) in Southeast Asia have been unable to secure sufficient, or any, funding on at least one or more occasion in the last five years, according to a new report from cloud banking platform Mambu.

The ‘Small business, big growth’ report surveyed over 1,000 SME owners globally, including business owners in Singapore, Indonesia, Thailand and the Philippines, who set up their company and applied for a business loan in the last five years.

It reveals that reliance on personal networks is high, with nearly half (48%) of Southeast Asian SMEs surveyed relying on friends and family for funding to launch their businesses.

Of the Southeast Asian SMEs unable to secure sufficient funding, 40% experienced cash flow issues, 38% were unable to launch new products or services and 36% were unable to hire effectively – a major impact amid the ‘Great Resignation’.

Mambu’s findings come amid a rise in alternative lending, as SMEs turn to challenger banks and fintechs to overcome common barriers. The opportunity for new entrants is clear as the vast majority (94%) of Southeast Asian SMEs say they are open to changing lenders for different or simpler digital support. 

More than half (55%) of Southeast Asian SMEs cite better borrowing benefits and incentives as the top reason to change lenders. Meanwhile, 52% would switch for better financial options and 42% for improved digital services.

70 million SMEs

Myles Bertrand, Managing Director APAC at Mambu, says, “There are more than 70 million micro, small and medium enterprises (SMEs) in Southeast Asia, making up approximately 99% of all businesses.

“These businesses drive growth and employment, and are integral to the economic success of the entire Southeast Asian region, and yet they struggle to have their needs met in terms of business financing. While the Southeast Asian region has experienced phenomenal digital innovation for individual consumers, particularly in terms of digital payment solutions, services for SMEs are lagging behind.”

Financial institutions must do more to tackle challenging application processes for loans. The research found that the length it takes to apply for a loan is a major influence on SMEs when choosing a lender. 

A short application process was cited as one of the most important considerations when trying to secure external financing by 86% of Southeast Asian SMEs, while low-interest rates remain the most important factor (90%).

“What we’re seeing globally is a shift away from traditional lenders towards more innovative, digitally-focused lenders that use technology to provide a more customer-centric service.

“In Southeast Asia, where consumers have wholeheartedly embraced new digital financial solutions, business lenders need to harness the power of new technologies and offer the products and services that their customers want and need, in order to remain relevant and competitive,” says Bertrand.

When it comes to improving the application process, the majority of Southeast Asian SMEs reported interest in faster loan decision processing (87%), more flexible loan conditions (87%), tailored offers and services (86%), and low or no collateral requirements (86%).

Pandemic woes

“The pandemic has ushered in enormous changes in how we work, play and shop, accelerating the democratisation of digital and with its repercussions still reverberating across society. But access to capital is an area where digitisation has matured at a much slower place.

“All too often, businesses looking to scale quickly and seize opportunities are choked by exhausting application processes. Stifled by slow and inefficient practices, current lending practices are no longer fit-for-purpose in today’s fast-paced, digital world,” says Richard Lim, CEO of Retail Economics.

The most common barriers to securing funding among SMEs globally are not enough starting capital (30%), too much paperwork and admin in the lending process (28%) and cash flow not being considered strong enough (27%).

Download the ‘Small business, big growth’ report here.