MANILA, Philippines – Financing for overall development of small and medium enterprise (SME) were discussed recently by former Agrarian Reform Secretary Philip Ella Juico in a dialogue with the SME finance working group at a forum held at the Asian Development Bank (ADB).
Juico, a former dean of the De La Salle University Graduate School of Business, shared his characterization of SME’s in the Association of Southeast Asian Nations (ASEAN) as a basis for the establishment of credit risks of SME’s to qualify under ADB-assisted development finance windows. Juico said the proposed characterization, could be used as a basis for risk mitigation financing policies of development banks.
According to Juico, the SME sector in ASEAN is not monolithic and to regard it as such may be counter-productive due to the diverse characteristics of the sub-sectors where SMEs operate.
Juico cited the case of the electronics and e-ICT subsectors in Malaysia and Singapore where both subsectors exhibited strong performance as original design manufacturer (ODM) and as electronics manufacturing Services (EMS) production platforms with substantial financial and R&D government support. Both subsectors in the two countries enjoyed strong performance in both the domestic and export markets.
The same subsectors in the Philippines and Indonesia, however exhibited different characteristics with the electronics and e-ICT industries transitioning from a “mom-and-pop” to corporate operations mainly as subcontractors to domestic-based multinational companies. Juico pointed out that these subsectors in the two countries have been operating as original equipment manufacturer (OEM) production platforms at the lower end of the global supply chain as they transitioned from the domestic to the export market.
Juico, who is doing a study on 19 SMEs in ASEAN and Japan engaged in electronics, ICT and agro-food processing, said SMEs in ASEAN have universal sector characteristics and common problems. Juico said they are generally personality-driven whether the enterprises are found in Malaysia, Singapore, the Philippines or Indonesia, which are market economies, or in command economies with a strong informal market environment.
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Juico said there are universal and common concerns such as the absence of a harmonized regional development policy framework for SMEs transitioning from community to domestic to export markets. In addition, Juico emphasized there was also the absence of harmonized regional financing and/or credit guarantee programs for SME sectors and subsectors.
Juico stated that the forthcoming implementation of the ASEAN Free trade agreement (AFTA) should enable free movement of skilled labor across ASEAN and the absence of a harmonized regional skilled labor certification program could promote a two-tier labor rate system. The implications of such a two-tier system will be significant particularly to the Philippines and Indonesia which have the largest manpower pools in the region.
In addition to proposing a harmonized skilled labor certification program during the forum which seeks to promote a more responsive credit risk profiling for the ADB, Juico broached the possibility of speeding up efforts towards a regional SME business registration to facilitate enterprise identification for financing and/or credit guarantee programs and domestic and export market access.