Assessment and Training on Two-Step Loan, Credit Guarantee System, and Venture Capital for CLMV

Proponent : Ministry of Industry and Commerce, Lao PDR
Implementing Agency : Department of SME Promotion (DOSMEP), Ministry of Industry and Commerce, Lao PDR

Background

Micro, Small and Medium Enterprises (MSMEs) are the backbone and important “engines of growth” in ASEAN. They account for some 96 per cent of all enterprises particularly in Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV) countries1. Moreover, MSMEs constitute the vast majority of enterprises and contribute significantly to employment, gross domestic product (GDP) in all CLMV countries.2 Despite its importance, MSMEs in CLMV countries face several challenges including lack of adequate financing to expand their business. Traditional finance from banks has become the most common method of attaining finance. However, MSMEs often find themselves no longer qualified for small loans from microfinance institutions but not big enough for loans from corporate banking models. Indeed, filling the gap through alternative financing instruments such as two-step loan, credit guarantee system and venture capital is required, especially in relation to the Initiative for ASEAN Integration (IAI) strategic framework.

Japan has been a consistent supporter of the IAI and MSMEs in ASEAN through various projects and programmes. Japan remains firmly committed to support the IAI Work Plan especially in the strategic area on MSMEs. In particular, and as a response to promoting MSMEs, the project Assessment and Training on Two-Step Loan, Credit Guarantee System, and Venture Capital for CLMV aims to “increase access to finance for MSMEs” as stipulated in the IAI Work Plan III (2016-2020). Following through the commitment, “increasing access to finance for MSMEs” continues to be one of the objectives of IAI Work Plan IV (2021-2025)

What is the project aiming for?

The project intends to enhance the knowledge of CLMV officials and bank employees on two-step loan, credit guarantee system and venture capital while at the same time exploring the regulatory and infrastructure gaps and assistance required. To do this, desk research, national consultations with CLMV countries and a regional workshop, will be carried out to produce the following main outputs:

  • Improved knowledge for CLMV officials and state owned/ private bank employees on two-step loan, credit guarantee system and venture capital;
  • Assessment report on the existing alternative financing instruments in each CLMV country which includes recommendation to address the challenges and determine capacity building and/or technical assistance required by each country; and
  • Concept note for the next phase of the project.

Whilst access to traditional funding remains prohibitive to MSMEs, access to alternative sources of finance for MSMEs needs to be enhanced as well. Despite various efforts to help MSMEs have adequate access to angel investors, venture capital, social impact investment and equity crowdfunding, MSMEs are still not able to optimally utilize these alternative sources given the very limited and generic information provided to them.

Norlela Suhailee, Chair, ASEAN Coordinating Committee on MSME and
Jose Ma. A Concepcion III, Chair, ASEAN Business Advisory Council
Foreword of Handbook for MSME Access to Alternative Sources of Finance in ASEAN
2017

In addition to its alignment to IAI Work Plan, the project contributes to the ASEAN Economic Community Blueprint 2025, particularly on strengthening the role of MSMEs as stipulated in Strategic Measure D.1.69 (ii): Increase access to finance by developing and enhancing the institutional framework in respect of improving understanding and strengthening traditional financing infrastructure as well as the policy environment and measures that foster alternative and nontraditional financing; promote financial inclusion and literacy and the ability of MSMEs to be better engaged in the financial systems; and enhance tax and other incentive schemes.

The project commenced in February 2021 and is expected to be implemented until August this year.

As of 31 May 2021

1 Handbook for MSME Access to Alternative Sources of Finance in ASEAN available at https://asean.org/wp-content/uploads/2012/05/Final-Handbook-for-MSME-Access-to-Alternative-Sources-of-Finance-in-AS….pdf

2 Initiative for ASEAN Integration (IAI) Work Plan III available at https://asean.org/storage/2016/09/09rev2Content-IAI-Work-Plan-III.pdf

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