Improving Financial Accessibility for SMEs in Manufacturing

In a move to provide financial accessibility for Small and Medium Enterprises (SMEs), the government of Pakistan has launched the National Credit Guarantee Company Limited (NCGCL). NCGCL is a collaborative venture between the Government of Pakistan and Karandaaz Pakistan that aims to revolutionize the SME sector by boosting the revenues. The establishment of the NCGCL is heralded as a landmark institutional reform, aimed at invigorating the SME sector, which has been struggling because of insufficient investments. This initiative is expected to pave the way for sustainable economic growth and development in Pakistan.

Enhancing financial accessibility for small and medium-sized enterprises (SMEs) has become a priority for the business ecosystem at the country and global level. Financial inclusion and financial deepening has been regarded as key factors for development of the SME sector. It is also crucial for sustainable growth, job creation and social cohesion.

"Small and medium-sized enterprises are crucial drivers of innovation, yet they often face significant barriers that hinder their progress. By applying specialized financial techniques, we can remove these barriers and open up new avenues for growth and success "said Martha Barrantes, Financial Expert. Several initiatives are being taken across the world by governments in order to provide financial aid and accessibility for SMEs. Through schemes and initiatives like Make in India, the Indian government has boosted the manufacturing infrastructure of SMEs in the country. Various other financial solutions are also being brought into the scenario.

Alternative Financing Instruments

Alternative financing instruments are crucial for SMEs and for the businesses that are not having access to traditional bank loans. These instruments are providing flexibility, often have less stringent requirements, and can be more adaptable to the unique needs of SMEs. Alternative financing instruments are currently at a state to offer SMEs various options to secure the necessary funds for growth and operations. These alternatives are being tailored to fit specific business needs, provide flexibility, and often come with less stringent requirements than traditional bank loans. By exploring and leveraging these instruments, SMEs can enhance their financial stability and fuel their growth.

In this regard, one notable company that provides alternative financial instruments to SMEs is Kabbage. Kabbage offers a variety of financing options specifically designed for small and medium-sized businesses. The company provides lines of credit up to $250,000. SMEs can draw funds as needed and pay only for what they use.

Asset Based Financing

This type of financing provides potential protection against any kind of financial fluctuations that might take place during the growth phase. There can be an extended rage of assets that a company may show in this regard starting from machinery available to intellectual property patents that may be available. The primary idea here is to generate working capital in order to meet the short-term capital needs. For this small businesses may make use of company assets as collateral for commercial loans. There can be multiple types of asset based financing for SMEs. Companies can use their inventory as collateral for arranging finance for inventory development. Factoring has been another emerging asset based financing solution globally.

To give an example, one company that provides asset-based financing to SMEs is Crestmark, a division of MetaBank. The company specializes in offering various types of asset-based lending solutions to help small and medium-sized enterprises manage their cash flow and finance their operations.

“Intangible assets are like the dark matter of our financial world – mysterious and largely invisible, even if they are now exerting a huge and increasingly visible influence on our companies and economies”, said Daren Tang, Director General, WIPO.

Crowdfunding

Post the economic depression in 2007-2009, it has become difficult for SMEs to grow and this scenario gave rise to the concept of crowdfunding. It has emerged as a popular funding mechanism for the SME sector where working capital can be gathered by a company from a large pool of individuals. The demand for crowdfunding is growing at an exponential rate and as per reports published by Statista, the market is likely to reach a net valuation of 3.63 Bn USD by the end of 2030. This is slowly and steadily changing the overall financial structure and working capital movements for the SMEs.

To give an example, a crowdfunding platform named Kickstarter had listed 592,000 new projects on to its platform for individuals to inspect and fund new initiatives. It has emerged as one of the popular platforms for crowdfunding and is one of the ways for receiving financial support for small businesses or giving new business ideas to life.

“We have witnessed donors contribute to campaigns to procure medical equipment, PPE kits, masks, face shields, sanitizers, ventilators, etc. for healthcare workers and frontline workers,” said Piyush Jain Co-Founder & CEO, Ketto.

The last decade has seen many new methodologies are being implemented by governments and organizations in order to streamline the process of financial accessibility for SMEs and add value to the complete business ecosystem. Apart from the above measures, various others have come into the scenario and are changing the capital flow mechanisms for the SMEs. We will observe many other such initiatives in the coming years.