By Nan-Hie In
The Asia Pacific Financial Forum (APFF), managed by the APEC Business Advisory Council, has been a regional platform for collaboration between public and private sectors since 2013. Its purpose is to knit closer economic ties within the region and to develop financial markets and services in the Asia Pacific pursuant of APEC’s overall goals of inclusive, sustained regional growth.
Improving access to finance for SMEs remains a fundamental issue at top forums such as G20 and ASEAN, and the APFF is no exception. The region’s growth is still predominantly dependent on export-driven models that are reliant on consumers in Europe and the US. To cultivate domestic demand in the region for its own products, one strategy is to diversify the financial markets so that SMEs can better get access to capital, says Dr Julius Caesar Parreñas, APFF Coordinator and a senior advisor at Nomura Securities.
“We need more inclusive financial systems, which means financial systems that would provide more funding for SMEs, a very important objective to the finance ministers this year with the theme of APEC being inclusive growth,” he says. However, existing finance systems have posed challenges for smaller businesses to acquire funding.
For banks to lend to SMEs, much information about the borrower – and collateral – is required. “A lot of SMEs do not have collateral; they do not have real estate or inventories, yet they want to do business, so how can banks lend to these people?” Parreñas notes, adding that transaction or other credit records of small companies can serve as collateral for funding purposes in advanced economies.
However, legal and regulatory changes are needed to enable such information to be used as collateral by SMEs, he adds. “We need to establish the institutions like collateral registries for example, and to establish laws that address the concerns of lenders.” These recommendations were featured in the previous APFF Interim Report, which was endorsed by finance ministers last year.
To further this cause is a pathfinder initiative to develop credit sharing information systems to establish legal institutional frameworks for credit bureaus to work. “Several governments have said they want to work with APFF to introduce the institutional legal framework,” Parreñas points out, adding that the Philippines and Mexico have volunteered to lead this pathfinder initiative, which will be under the finance ministers process.
Another focus is the development of capital markets to encourage long-term investment to the region. A pathfinder initiative to develop classic repo markets will include workshops to develop strategies to improve legal documentation infrastructure for the derivatives markets, reveals Parreñas.
Much attention is also paid to enhance the regional securities investment ecosystem to encourage insurance companies and pension plans to invest, particularly on infrastructure. Parreñas cites inhibitory policies in nations such as Indonesia, where banks can only lend up to 7 years. “For investors in infrastructure where you look at 20- to 30-year time frames, where you need to hedge your local currency risks, then [such policy] becomes a problem,” he says.
Another goal is to expand the Asia Region Funds Passport (ARFP), a centerpiece project at this forum. The 6-year-old scheme facilitating the flow of capital funds from one jurisdiction to another has six nations signed on – a number viewed as insufficient. “For the ARFP to be successful, it needs to include major markets in the region,” Parreñas says. “If we get Japan, China, Taiwan or Hong Kong into ARFP, then it will become very interesting,” he says. The organization is pushing this message particularly to regulators to get more nations onboard ARFP.