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Efforts to provide working capital for small and medium firms have made limited headway in a climate where lenders are wary of additional risks

 

SMALL BUSINESS

Squeeze remains tight for most

SOONRUTH BUNYAMANEE

Small and medium-sized enterprises (SMEs) are awaiting the outcome of the general election with much interest.

Although SMEs represent 80% of the country's industrial producers and account for 70% of all employment, they have had more difficulty than many larger counterparts in obtaining loans from banks that are reluctant to lend in fear of creating more bad loans.

Government attempts to revive the economy have not helped small firms to the extent expected. Most remain short of working capital and unable to service debts. To survive, they have had no choice but to continue to lay off workers .

Potential lenders, already saddled with bad loans, are deterred from lending to small firms by questionable book-keeping practices and the risk of new loans turning bad.

Political parties seeking to oust the government have been quick to question its record in helping small firms.

In 2000, the government established the Small and Medium Finance Corporation to increase its capital to 4.4 billion baht from 400 million for lending to small businesses.

Other state-owned financial institutions, including the Industrial Finance Corporation of Thailand, Krung Thai Bank, the Government Savings Bank and the Export-Import Bank of Thailand, were encouraged to tailor loan packages for small enterprises.

However, in the first 10 months six state-owned financial institutions loaned only 26 billion baht, 56% of the targeted 46 billion, to 35,898 small operators.

The lenders were the Bank of Thailand (6.57 billion), IFCT (9.23 billion), SMFC (1.27 billion), Bank for Agriculture and Agricultural Co-operatives (3.66 billion), Government Savings Bank (950 million) and Small and Medium Finance Guarantee Corporation (642 million).

With lenders wary of risks, many small and medium firms, most of which are family businesses, were unable to meet stringent criteria.

However, many small firms have only themselves to blame given their records of fiddling the books, such as forging accounts to evade tax and deceive creditors. Some have become what are known as ''strategic'' debtors; in other words they can afford to make repayments but are deliberately withholding money in the hope that creditors will accept losses. In many cases, though, accumulated debt is a genuine problem.

The Corporate Debt Restructuring Advisory Committee (CDRAC), set up by the Bank of Thailand two years ago, has given priority to restructuring debts of large businesses.

By the end of September, 5,300 debtors owing a total of 1.1 trillion baht had undergone restructuring. Some 756 were large businesses and the rest were small firms.

However, the debts of small firms accounted for only 101 billion baht of the total. The figures underscored the government's focus on restructuring the debts of large businesses. But critics claim the figures also reflect a lack of interest in helping the large number of small but indebted firms.

State agencies estimate that at least 160,000 SMEs are lining up to undergo debt restructuring.

The government has taken steps to help. It passed the SME Promotion Act on Feb 18, 2000, setting up a venture capital fund to support SMEs which have good potential but lack capital. State financial institutions were to provide SMEs with support, while an Institute for Small and Medium Enterprise Development was established to offer small firms technology and advice.

However, little headway has been made in some respects. For instance, the venture capital fund is still taking shape although it was approved in August, while financial help from state-owned institutions has been well short of expectation.

In the lead-up to the election, the two main contenders, Thai Rak Thai and the Democrats are competing for support from small businesses.

Thai Rak Thai has pledged to provide more incentives from the Board of Investment, accelerate the establishment of the venture capital fund, and turn some state-owned banks into an SME bank. The party's policies, particularly the venture capital fund and SME bank, are similar to those espoused by the Democrats while in office. The difference is how efficiently each of the two parties would put the ideas into practice after the election.

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