THE Government introduced the small to medium enterprise (SME) loan scheme last year shortly after the global outbreak of the Coronavirus (Covid-19) pandemic.
The scheme was established in partnership with the Government and a number of banks.
The Government made budget appropriations for the scheme and parked the funds at the banks.
The scheme was aimed at providing concessional lending to the SME sector in Papua New Guinea as part of its broader economic stimulus package to resuscitate the domestic economy from the unprecedented effects of the pandemic.
A concessional rate is normally set below the market rate indicated by the interbank lending rate (ILR) as the banks are not required to engage in interbank transactions to help facilitate the scheme.
The notion that surplus cash injection into the banking system have the tendency to drive down the lending rates is true, but in this case, not all lending rates will be affected.
Other lending products offered by the banks will be indicated by the traditional ILR as a normal practice.
Hence, the concessional lending rate will be imposed by the banks’ own internal calculations.
So far, the Government had approved submissions from the National Development Bank and the Bank South Pacific Financial Group Ltd to rollout the scheme.
Despite the Government’s support, the warrants to the nominated banks had not been issued until February so most SMEs had already gone out of business before the scheme became available.
This largely pertained to the time lag when the pandemic and associated restrictions struck businesses and when support from the scheme had actually been made available to them.
To add on the list of problems, a majority of micro, small and medium enterprises (MSMEs) in the country operate on an ad hoc basis and lack sound management skills, including record keeping and reordering systems, financial records, budgeting, human resource and marketing.
Others further operate without using trading licenses, bank accounts, tax identification numbers and business name, making it complicated for them to access the funds appropriated under the scheme and other benefits available to a fully compliant business.
Furthermore, the cost incurred on the administrative functions including licensing, Investment Promotion Authority fees, bank account maintenance fees and income tax are alluded to be often too much for businesses in the MSME sector.
Hence, most MSMEs are said to be reluctant to set up under this environment and most prefer to operate out-of-reach from regulatory authorities and the banks.
These few problems leave the SME sector in an unequal playing field so the onus now is on the Government, through the SME Corporation, to develop strategies to create a better playing field.
Among a number of strategies, I think the Government, through the SME Corporation should create a MSME help desk in all major centres throughout the country with the responsibility for providing advice and support to the MSME sector.
The help desk should be able to assist MSMEs in opening bank accounts, using basic business tools, registering a business name, getting a tax identification number, applying for loans and other services. This approach is fair in light of the stringent compliance process imposed by the banks on SMEs, which are struggling to apply for loans.
It’s worth noting that most MSMEs have no compliance certification and banks lack capacity to frequently monitor and detect SME activities, hence, it won’t help to relax any compliance process.
This is why the Government should establish the SME help desk to provide business development tools to the MSME sector and make them more compliant.
This will help bridge the gap between government policy and the SME sector and help position the sector on a better playing field to apply for loans, compete with other businesses and grow.