How alternative financing solutions can help fuel the growth ambitions of Southeast Asian SMEs
The diversification of supply chains away from China has created “a once-in-a-generation opportunity for Southeast Asia,” as Liew Chin Tong, Malaysia’s Deputy Minister of Investment, Trade, and Industry, put it.[1]
Tapping into that opportunity will require funding, which small- and medium-sized enterprises (SMEs) in the region are having a hard time accessing. Without innovative funding solutions, this could create a bottleneck to achieving the region’s impressive growth prospects. Securities-backed financing from EquitiesFirst could provide the answer.
Securities-backed financing can sustain the bedrock of ASEAN’s economy
According to the Asian Development Bank (ADB), there are at least 71 million micro, small and medium-sized enterprises (MSMEs) in Southeast Asia. They account for 97% of all businesses in the region, employ 67% of the working population and contribute an estimated average 40.5% of GDP in each of the countries.[2] However, because many microenterprises operate informally, the true figures could well be even higher.
Excluding the microenterprises, which are usually focused domestically, SMEs also comprise a significant chunk of ASEAN’s exports. They play important roles in economic and social development, contributing to innovation and inclusive growth by creating jobs in both urban and rural areas. They are the backbone of the region’s economy, and fundamental to achieving long-term growth and development.
ASEAN’s SMEs have a pressing need for alternative funding
These businesses need financing to grow. However, about 60% of surveyed MSMEs requiring financing or credit in the region have expressed difficulty or inability to obtain loans from traditional financial institutions, says the ADB.[3] Fortunately, help is at hand, with awareness of and access to asset-backed lending spreading quickly.[4]
Highlighting the current challenges faced by the region’s SMEs in even getting off the ground, a new report reveals that 70% of them started their businesses with seed money raised from personal savings or from family and friends.[5]
A separate survey indicates that more than two-thirds of SMEs in Southeast Asia have struggled to secure funding on at least one occasion in the last five years. Of these businesses, 40% experienced cash flow issues, 38% were unable to launch new products or services, and 36% were unable to hire effectively.[6]
Even though consumer credit in ASEAN is becoming steadily easier to access, 39 million MSMEs in the region still face challenges to financing, according to the United Nations Capital Development Fund, with the gap estimated at as much as US$300 billion.[7]
Even though banks in Southeast Asia have been largely immune to the banking crisis afflicting their peers in the West, an uneven global economic outlook has raised bad debt concerns across ASEAN, making the region’s banks even more reluctant to lend to SMEs. High interest rates are also taking a toll: the ADB estimates that even a 1% hike in interest rates could lead to a 10% rise in the number of MSMEs going bankrupt.[8]
Solid fundamentals underpin ASEAN’s bright prospects
Still, the overall outlook for Southeast Asia’s economy is sanguine, thanks to the ongoing trend for multinationals to recalibrate and relocate parts of their supply chains to ASEAN countries, together with anticipated increased trade and investment from the US and China into the region, supported by a number of free trade agreements.[9]
The ASEAN opportunity is supported by a unique combination of competitive wages relative to China, Singapore’s strengths in financial services and high tech, and an impressively large population aged between 25 and 54 with a tertiary education.
It also benefits from booming consumption among its population of 670 million. As ASEAN becomes more affluent, its consumer class will grow increasingly prominent. In fact, on average, one individual enters the middle-income bracket every two seconds in the region, buoying a variety of sectors ranging from e-commerce to fintech.[10]
The prognosis for the region’s digital economy is especially encouraging, with 125,000 new internet users coming online every day.[11] The latest e-Conomy SEA report released by Google, Temasek and Bain & Company predicts that the digital economy across ASEAN’s six biggest economies—Indonesia, Malaysia, the Philippines, Thailand, Vietnam and Singapore—alone could reach as much as $1 trillion by 2030, up five-fold from around $200 billion in 2022.[12]
Securities-backed financing can help close the SME financing gap
In order to exploit this opportunity, 31% of ASEAN SMEs surveyed by United Overseas Bank’s Business Outlook Study 2023 said they were pursuing digitalisation as a top priority.[13] In addition to paving the way for online sales, such investments can help them become more efficient and tackle the challenges of rising operating costs in a high-inflation environment.[14]
In the current climate, SMEs wishing to raise capital to pursue digitalization efforts or expand their operations in ASEAN can consider securities-backed financing from EquitiesFirst. By using their stocks or crypto as collateral, they can access competitively priced loans with no restrictions on use of funds.
The loans we sign are non-recourse, meaning that in the event that the assets pledged do not perform, or if the borrower has problems paying the interest or repaying the loan, their losses are limited to the collateral.
Securities-backed financing is also a compelling option for investors seeking to expand their portfolios to encompass this fast-growing region. It provides investors liquidity to diversify their positions to other geographies and sectors or obtain currency hedges without sacrificing the upside potential of their underlying holdings.
[1] https://www.businessinsider.com/supply-chain-shift-china-create-middle-class-winners-southeast-asia-2023-9
[2] https://seads.adb.org/solutions/realizing-potential-over-71-million-msmes-southeast-asia
[3] https://seads.adb.org/solutions/realizing-potential-over-71-million-msmes-southeast-asia
[4] https://www.kkr.com/insights/asset-based-finance-fast-growing-frontier-private-credit
[5] https://technode.global/2023/10/10/nearly-seven-in-ten-smes-in-southeast-asia-rely-on-startup-capital-from-savings-family-and-friends-sme-industry-report/
[6] https://cfotech.asia/story/mambu-report-shows-68-of-smes-struggle-to-secure-funding
[7] https://www.uncdf.org/article/8264/first-ever-impact-focused-southeast-asian-financial-inclusion-report-charts-pathways-to-accelerate-impact-beyond-access#:~:text=About%20225%20million%20Southeast%20Asians,up%20to%20US%24300%20billion
[8] https://asia.nikkei.com/Economy/ASEAN-rate-hikes-squeeze-margins-for-millions-of-small-companies#:~:text=Citing%20figures%20from%20the%20Asian,the%20number%20of%20bankrupt%20MSMEs.%22
[9] https://www.euromoney.com/article/2bzar54a6dgdmu3wi3i0w/sponsored-content/harnessing-aseans-growth
[10] https://www.hubbis.com/news/ubs-investment-office-highlights-healthtech-and-asean-s-emerging-economy-as-lucrative-opportunities-amidst-tech-stock-stagnation
[11] https://www.euromoney.com/article/2bzar54a6dgdmu3wi3i0w/sponsored-content/harnessing-aseans-growth
[12] https://economysea.withgoogle.com/home/
[13] https://www.euromoney.com/article/2bzar54a6dgdmu3wi3i0w/sponsored-content/harnessing-aseans-growth
[14] https://www.straitstimes.com/business/greater-stability-more-opportunities-why-its-timely-and-critical-for-asean-smes-to-go-digital
The diversification of supply chains away from China has created “a once-in-a-generation opportunity for Southeast Asia,” as Liew Chin Tong, Malaysia’s Deputy Minister of Investment, Trade, and Industry, put it.[1]
Tapping into that opportunity will require funding, which small- and medium-sized enterprises (SMEs) in the region are having a hard time accessing. Without innovative funding solutions, this could create a bottleneck to achieving the region’s impressive growth prospects. Securities-backed financing from EquitiesFirst could provide the answer.
Securities-backed financing can sustain the bedrock of ASEAN’s economy
According to the Asian Development Bank (ADB), there are at least 71 million micro, small and medium-sized enterprises (MSMEs) in Southeast Asia. They account for 97% of all businesses in the region, employ 67% of the working population and contribute an estimated average 40.5% of GDP in each of the countries.[2] However, because many microenterprises operate informally, the true figures could well be even higher.
Excluding the microenterprises, which are usually focused domestically, SMEs also comprise a significant chunk of ASEAN’s exports. They play important roles in economic and social development, contributing to innovation and inclusive growth by creating jobs in both urban and rural areas. They are the backbone of the region’s economy, and fundamental to achieving long-term growth and development.
ASEAN’s SMEs have a pressing need for alternative funding
These businesses need financing to grow. However, about 60% of surveyed MSMEs requiring financing or credit in the region have expressed difficulty or inability to obtain loans from traditional financial institutions, says the ADB.[3] Fortunately, help is at hand, with awareness of and access to asset-backed lending spreading quickly.[4]
Highlighting the current challenges faced by the region’s SMEs in even getting off the ground, a new report reveals that 70% of them started their businesses with seed money raised from personal savings or from family and friends.[5]
A separate survey indicates that more than two-thirds of SMEs in Southeast Asia have struggled to secure funding on at least one occasion in the last five years. Of these businesses, 40% experienced cash flow issues, 38% were unable to launch new products or services, and 36% were unable to hire effectively.[6]
Even though consumer credit in ASEAN is becoming steadily easier to access, 39 million MSMEs in the region still face challenges to financing, according to the United Nations Capital Development Fund, with the gap estimated at as much as US$300 billion.[7]
Even though banks in Southeast Asia have been largely immune to the banking crisis afflicting their peers in the West, an uneven global economic outlook has raised bad debt concerns across ASEAN, making the region’s banks even more reluctant to lend to SMEs. High interest rates are also taking a toll: the ADB estimates that even a 1% hike in interest rates could lead to a 10% rise in the number of MSMEs going bankrupt.[8]
Solid fundamentals underpin ASEAN’s bright prospects
Still, the overall outlook for Southeast Asia’s economy is sanguine, thanks to the ongoing trend for multinationals to recalibrate and relocate parts of their supply chains to ASEAN countries, together with anticipated increased trade and investment from the US and China into the region, supported by a number of free trade agreements.[9]
The ASEAN opportunity is supported by a unique combination of competitive wages relative to China, Singapore’s strengths in financial services and high tech, and an impressively large population aged between 25 and 54 with a tertiary education.
It also benefits from booming consumption among its population of 670 million. As ASEAN becomes more affluent, its consumer class will grow increasingly prominent. In fact, on average, one individual enters the middle-income bracket every two seconds in the region, buoying a variety of sectors ranging from e-commerce to fintech.[10]
The prognosis for the region’s digital economy is especially encouraging, with 125,000 new internet users coming online every day.[11] The latest e-Conomy SEA report released by Google, Temasek and Bain & Company predicts that the digital economy across ASEAN’s six biggest economies—Indonesia, Malaysia, the Philippines, Thailand, Vietnam and Singapore—alone could reach as much as $1 trillion by 2030, up five-fold from around $200 billion in 2022.[12]
Securities-backed financing can help close the SME financing gap
In order to exploit this opportunity, 31% of ASEAN SMEs surveyed by United Overseas Bank’s Business Outlook Study 2023 said they were pursuing digitalisation as a top priority.[13] In addition to paving the way for online sales, such investments can help them become more efficient and tackle the challenges of rising operating costs in a high-inflation environment.[14]
In the current climate, SMEs wishing to raise capital to pursue digitalization efforts or expand their operations in ASEAN can consider securities-backed financing from EquitiesFirst. By using their stocks or crypto as collateral, they can access competitively priced loans with no restrictions on use of funds.
The loans we sign are non-recourse, meaning that in the event that the assets pledged do not perform, or if the borrower has problems paying the interest or repaying the loan, their losses are limited to the collateral.
Securities-backed financing is also a compelling option for investors seeking to expand their portfolios to encompass this fast-growing region. It provides investors liquidity to diversify their positions to other geographies and sectors or obtain currency hedges without sacrificing the upside potential of their underlying holdings.
[1] https://www.businessinsider.com/supply-chain-shift-china-create-middle-class-winners-southeast-asia-2023-9
[2] https://seads.adb.org/solutions/realizing-potential-over-71-million-msmes-southeast-asia
[3] https://seads.adb.org/solutions/realizing-potential-over-71-million-msmes-southeast-asia
[4] https://www.kkr.com/insights/asset-based-finance-fast-growing-frontier-private-credit
[5] https://technode.global/2023/10/10/nearly-seven-in-ten-smes-in-southeast-asia-rely-on-startup-capital-from-savings-family-and-friends-sme-industry-report/
[6] https://cfotech.asia/story/mambu-report-shows-68-of-smes-struggle-to-secure-funding
[7] https://www.uncdf.org/article/8264/first-ever-impact-focused-southeast-asian-financial-inclusion-report-charts-pathways-to-accelerate-impact-beyond-access#:~:text=About%20225%20million%20Southeast%20Asians,up%20to%20US%24300%20billion
[8] https://asia.nikkei.com/Economy/ASEAN-rate-hikes-squeeze-margins-for-millions-of-small-companies#:~:text=Citing%20figures%20from%20the%20Asian,the%20number%20of%20bankrupt%20MSMEs.%22
[9] https://www.euromoney.com/article/2bzar54a6dgdmu3wi3i0w/sponsored-content/harnessing-aseans-growth
[10] https://www.hubbis.com/news/ubs-investment-office-highlights-healthtech-and-asean-s-emerging-economy-as-lucrative-opportunities-amidst-tech-stock-stagnation
[11] https://www.euromoney.com/article/2bzar54a6dgdmu3wi3i0w/sponsored-content/harnessing-aseans-growth
[12] https://economysea.withgoogle.com/home/
[13] https://www.euromoney.com/article/2bzar54a6dgdmu3wi3i0w/sponsored-content/harnessing-aseans-growth
[14] https://www.straitstimes.com/business/greater-stability-more-opportunities-why-its-timely-and-critical-for-asean-smes-to-go-digital
