Banks Fret As Smes Fail To Bag Loans
By Fei Phoon

Bandar Seri Begawan - Bruneian banks may be in a dilemma on how to handle SME owners' failure to qualify for loans, in the heat of Brunei's drive to diversify its economy.

Amongst the factors leading to most rejections were the lack of credit history, reliable information on fiscal background and viable business plans, as well as apparent difficulties in communicating business needs and managing working capital, according to a report presented yesterday during a forum on SME financing.

Notably, the absence of a government tax on most SMEs was also blamed for difficulties in ascertaining the financial position of applicant SMEs, said Hjh Rose Abdullah, head of the Business and Management Department at the Institut Teknologi Brunei (ITB), in her presentation at yesterday's Asean-Japan Policy Workshop on SME Development, specifically financing for micro and small enterprises (MSEs).

Her presentation was entitled "Policy-based Financing: Micro and Small Enterprise Finance in Brunei Darussalam", and drew on the responses of a surveyed sample of local SMEs.

The accompanying report on banks' reasons for turning down loan applications from SMEs was based on a publication jointly penned by academic staff from a department at ITB.

The study was conducted between March and April 2000, and identified adequate capital as topping the list of factors for a successful business, according to Bruneian SMEs.

An officer from the SME division of a local bank, who declined to be named, said that features for SME programmes designed by banks were limited by the lack of proper definition of SMEs in Brunei.

Currently, the classification of SMEs by the Bruneian government is heavily reliant on the number of staff employed.

However, the bank representative argued that this was not sufficient for professional appraisal of loan applications. "(Local banks) have to go on a case-by-case basis, and determine for themselves whether an organisation can be classified as an SME or an MSE, because the government has not made the distinction clear enough for us," she said.

She said that other details such as annual turnover and value of company assets figured greatly in their assessments.

The bank officer also expressed concerns over the general lack of knowledge or experience with banks demonstrated by many SME loan applicants.

More often than not we end up having to educate these SME owners on even simple banking procedures, such as what is a bank statement and a deposit or withdrawal," she said.

She added that loans were more easily won by applicants with existing businesses, as opposed to those who were looking to finance a start-up.

As of March 2006, only 67 per cent of the $29.1 million allocated to participating financial institutions was awarded to a total of 324 SMEs. The successful SMEs represented only a small fraction-4.48 per cent- of the 2003 total of 7,240 Bruneian SMEs.

The Brunei Times their formal or proper training in running an enterprise. "Management problems arise partly because many SME entrepreneurs have neither high level education nor professional qualifications (and) many of them lack the basic skills needed to manage an enterprise successfully," she said.

Hjh Rose said the issues suggest the state should play a more proactive role to overcome the difficulties faced by SMEs. "The development of SMEs is a continuous process and should be supported by an institutional structure that enables policy implementation and evaluation to take care of the interests of SMEs." It is not the sole responsibility of the government, financial institutions and chambers of commerce may become partners in the development of SMEs, she added.-- Courtesy of The Brunei Times

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