By LEMACH LAVARI
SMALL to medium-sized businesses (SMEs) should consider alternative sources of funding to bank loans to support their businesses, says National Development Bank’s (NDB) investment chief executive Des Yaninen.
Yaninen said there was great demand for capital from SMEs and startups, with the NDB lending about K700 million over the last eight years to 30,000 SMEs largely in the agriculture industry.
Despite that he said 80 per cent of SMEs failed within five years of establishment and new startups or small businesses found it very hard to access capital from banks because they did not have the equity that banks required as security.
However, Yaninen pointed out that there were other sources of capital available but were yet to be used widely in PNG. These included crowd funding, peer to peer funding and supply-chain financing.
He said the alternatives basically were when groups of people could pull together to support SMEs that were working on innovative projects that met common goals.
Moreover, Yaninen said from the two most common forms of lending, which were debt financing and equity financing, SMEs in PNG were largely seeking for equity financing.
He said debt was very stringent; there were a number of requirements that needed to be met in order for a loan to be approved.
Equity is where investors are invited to invest into a business.
“This is something that relates to SMEs in PNG because not everyone is after debt financing, they have the potential to grow and they have their new products and ideas (but) they do not have a workable business model yet,” Yaninen said.
“When they take their ideas to banks, almost all banks will turn them away because all they have is an idea that has not been proven.
“Banks will not invest in them because they are obliged to protect their deposits
“It is important to have alternative funding and not just from commercial banks. We have to think outside the box.
“If you have a product that has the potential to grow in PNG and the Pacific, you can attract seed capital or venture capital from eager investors inside and outside PNG who sense that you are working on a solution that can change not only PNG but the world.
“I’d like us to not just focus on loans but also other innovative alternatives and if we have a good mix of that we would be able to provide for SMEs in every stage of their life cycle.”
Yaninen said NDB was about less than 1 per cent of the entire domestic credit market in PNG. He said there was about K12 billion being borrowed in PNG and NDB only supplied K200 million.
He was speaking at a panel discussion on SMEs at the Speaker’s Investment Summit in Port Moresby yesterday.
By LEMACH LAVARI