INDUSTRY

SMEs in the spotlight

SMALL BUSINESS: Sector that accounts for 40% of GDP is getting attention

BUSRIN TREERAPONGPICHIT

Mr Thaksin has set a goal for SMEs to contribute 50% of GDP by 2006.

The expression SME has become a fixture in the Thai vocabulary under the Thaksin Shinawatra administration, and for good reason.

Small and medium-sized enterprises account for about 90% of the country's manufacturers and 40% of gross domestic product, and are the country's largest employer group, but scant attention was directed at them under previous administrations.

In the aftermath of the 1997-98 economic crisis, many Thais were forced to become self-employed and/or create their own businesses after losing their jobs at large companies that had been forced to scale back or go bankrupt.

The Thaksin administration recognised this phenomenon and has brought about some promising changes in the development of the country's small business sector.

Several SME development-related programmes have been introduced along with financial support schemes. Some of the financial policies of note are the village funds, the People's Bank, and One Tambon, One Product.

The government's SME promotion policy has three key planks: investment promotion, financial assistance and technical and management consultancy.

As part of the programme, the government upgraded the Small Industry Finance Corporation, a small 50:50 financial joint venture between the government and the private sector, into the Small and Medium Enterprise Development Bank of Thailand or SME Bank in December 2002. The bank then took on the role of assisting SMEs in securing sources of funds, preparing business plans and obtaining advice on operational issues.

In addition, the government instructed other special-purpose banks and state banks, including Krung Thai Bank and Siam City Bank, to provide loan support to SMEs.

In 2002, seven financial institutions provided lending and credit guarantees to SMEs worth 52 billion baht, up 28% from the year before. They were the Government Savings Bank, Industrial Finance Corporation of Thailand, the Bank for Agriculture and Agricultural Co-operatives, the Export and Import Bank of Thailand, the Government Housing Bank, the Small Industry Credit Guarantee Corporation, and the SME Bank.

The government is targeting total loans and credit guarantees to SMEs from these institutions to reach 80 billion baht this year.

The rapid growth in lending to SMEs by special-purpose and state banks has also re-ignited loans from private commercial banks that mostly had frozen small-business lending after the financial crisis despite huge excess liquidity.

Another key SME development by the Thaksin government was the establishment in 2003 of a venture capital fund worth five billion baht, aimed at creating joint ventures with SME projects. The fund has worked in conjunction with an existing SME venture capital fund worth one billion baht established by the Democrat-led government. The latter is now managed by One Asset Management Co.

The New Entrepreneurs Creation programme in 2002 is another initiative intended to encourage people to create their own businesses. So far, the project, which offers financial, production and marketing training as well as fund accessing advice, has led to the development of 20,000 new entrepreneurs. It is targeting by the end of next year to help establish 50,000 more new SMEs which in turn would lead to the creation of 200,000 new jobs.

According to the SME Promotion Office, an agency set up by the Thaksin administration, the number of SMEs in the country increased to 1.64 million in 2002 from 799,000 in 1997.

The government is now targeting for SMEs to contribute at least 50% to the GDP in 2006, up from 42% currently.

Chotesak Asapaviriya, the SME Bank president, said the bank had successfully filled the gap vacated by commercial banks which held the view that loans to SMEs are too risky.

He said his bank approved more than 20 billion baht worth of credit last year, up from 1.6 billion baht in 2000, 6.5 billion in 2001 and 17 billion in 2002. The bank wants the amount to reach 24 billion baht this year.

However, he noted that non-performing SME loans were around 22% of total credit outstanding, higher than the average of 16-17% for the financial sector as a whole.

Despite their success in terms of expansion, SMEs still face major problems related to quality and standards.

For example, many have poor financial accounting procedures or are often family-run and lack professional management discipline; and their historical rates of default are high.

Some critics say the government has thrown money at the development of SMEs without paying sufficient attention to improving the quality and standard of production, marketing and accounting.

They say funding along with improving the structures and business operations of SMEs must be done simultaneously for the sector to enjoy sustainable growth.