Dear Mr. Kittiratt Na-Ranong Minister of Finance,
As students of the San Francisco-based Presidio Graduate School’s Masters of Business Administration program, we are collaborating with a small startup business in Thailand in attempting to identify potential funding sources. Our research has revealed that there is a significant funding gap for small and medium startup enterprises (SMEs) in this region. We are writing in order to bring greater attention to this problem, as well as offer a few recommendations that might help close this crucial gap.
The Funding Gap
According to the Bank of Thailand, in 2010, lending to large enterprises totaled 3.6 trillion baht for approximately 86,000 ies, while lending to small and medium sized enterprises totaled 1 trillion baht for over 958,000 companies – a substantial disparity. Since small businesses account for almost 78 percent of employment in Thailand, the Thai government should prioritize the provision of support for these firms. However, when tasked with obtaining the funding essential to their operations, these small and startup companies face many obstacles from both public and private financial institutions.
The first issue involves the SMEs themselves, which suffer from a lack of financial maturity. Often holding minimal collateral assets, limited operational records, sparse knowledge about the availability of current governmental assistance programs, and only fragmented forums for guidance, these new and small firms have very few options for successfully securing loans or funding from financial institutions. They simply appear too risky, despite the substantial portion of the economy they hold.
Yet, commercial banks and other special financial institutions are not adequately versed in the specialized analytical tools required to accurately gauge these types of organizations and consequently may overestimate their cost and risk levels. The same can be said about the government financed Venture Capital program, as it has yet to find traction among startups. Finally, under the direction of the Thailand Central Bank, Specialized Financial Institutions (SFIs) operate on a profit-making principle instead of goals that may relate to overall socio-economic development, which further limits funds access to new, innovating social enterprise startups.
General Recommendations
Fortunately, there are many international examples of how the SME funding gap can be addressed. The following are a few general recommendations which can improve the situation:
Create a government organization specifically tasked with providing a consolidated set of resources specific to the needs of SMEs, such as business mentors, loan application guidance, and grants program information. An example is the United States Small Business Administration (SBA).
Create a program that provides government backed guarantees of bank or SFI loans to qualified SMEs, thereby reducing their perceived risk and encouraging more funding. These can be for all general businesses or targeted to strategic industries in need of growth. The United States SBA’s loan program is a working example.
Create a new or integrate into the current National Credit Bureau provisions to account for credit histories tied to SMEs, and build a database tracking their success/failure/return rates to provide greater historical context for loan assessments.
Change the Thailand Central Bank’s profit-oriented policies to those which encourage overall economic improvement and health.
Foster a more hospitable environment for private Venture Capital organizations by streamlining the business permitting process and easing constraints on foreign-national ownership and employee quotas.
We feel that incorporating any or all of these recommendations will help to close the funding gap most SMEs currently face, thereby creating a healthier job market, fostering a more innovative business environment, and successfully strengthening the overall Thailand economy.
Respectfully,
Somsak Boonkam | John Paul Chulliyil | Allan Enemark | Lindsey Wedewer
MBA Candidates at the Presidio Graduate School
