The Case for a Central Lending Platform in Singapore

Not enough SMEs are taking advantage of government supported loan programmes, in part due to the onerous processes involved in accessing them, say PwC’s Irene Liu and Shierly Mondianti.

Just over a year ago, at the 2019 Annual Business Outlook Forum hosted by the Singapore Chinese Chamber of Commerce and Industry, economists from three Singapore banks said SMEs are likely to be the future drivers of the economy in Singapore, if they were to continue their expansion abroad.

SMEs already play a vital role in the economy as they employ more than 70% of the Singapore workforce and contribute just under half of the national GDP, according to the Department of Statistics. As such, to ensure the sustained growth of Singapore’s economy, the factors that affect an SME’s survival and growth need to be critically examined.

“In the end, companies that really need this financial support don’t get it, because the loans tend to go to companies which already have a better financial standing,” said DBS senior economist Irvin Seah at the same business forum. This essentially cuts out high potential companies that have yet to evidence their ‘growth spurt’.

This lack of ability to access financial support becomes more pronounced during times of stress, such as during this ongoing global pandemic. Covid-19 brought these fragilities into the light and affected some of Singapore’s core industries.

SMEs have suffered dramatically as a result of social isolation measures, and the government has tried to address this through stimulus measures including the Jobs Support Scheme and Wage Credit Scheme, corporate and property tax rebates, and rental rebates. Additionally, highly discounted working capital and trade loans have also been instituted to ensure that SMEs have ready access to support their financing needs.

Impact of Covid-19 on SMEs

In April, the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) published a note examining the impact of the pandemic on SMEs and related policy responses.  It revealed that more than 50% of SMEs are expected to not survive the crisis due to their vulnerability to supply and demand shocks.

The collapse of SMEs could have a domino effect on the financial sector, which is already under strain from non-performing loan portfolios. The potential impact would mean a further deterioration in financial market confidence and a further reduction in the availability of credit lines.

Change is arriving in such rapid waves that it is washing away industry boundaries. In response to the Covid-19 crisis, whisky distillers started making hand sanitiser in some parts of the world, and some airline crews were redeployed to healthcare industries. Such examples illustrate the role of Covid-19 as one of the greatest drivers of transformation, digitalisation and agility in recent history.

Key issues faced by SMEs

On top of the need for a strategy to navigate (and thrive in) the crisis, SMEs are also faced with traditional manpower issues that have left them unsuited for the new era of digitalisation. SMEs are placed in a push-pull situation where they see an overall reduction in revenue, presenting working capital challenges, and yet they are required to produce additional capital to invest in digital transformation in order to be competitive.

These financing issues are even more pronounced for SMEs that are in more traditional businesses (i.e. businesses that rely solely on provisioning services or products in-person) and businesses that are in sectors worst hit by Covid-19 (e.g. tourism, aviation, retail, food service). From a financing point of view, these more ‘vulnerable’ businesses carry the most risk and require the most support during this period.

Government measures for SMEs

To increase support for SMEs in addressing the structural need for innovation and digitisation, while also recognising their need for immediate financing to preserve jobs, the Singapore government has taken multiple measures through its unprecedented four Budgets for 2020, such as those stated in the table below:

Financing support[1] Innovation support Manpower and other support
●      Temporary bridging loans
●      Working capital loans
●      Trade loans
●    Digital acceleration grants[2]
●    Business sustenance grants
●    Business growth grants[4]
●      Support on manpower costs[5]
●      Property tax rebates
●      Rental rebates[6]

 
With financing support in the spotlight, these government support measures have been generous, and are designed to benefit most SMEs. However, a common challenge that remains is accessibility to the available financing schemes. Though Singapore has approximately 270,000 SMEs (as of 2019), only about 10,600 firms are said to have borrowed from the government supported loan programmes.

This statistic is ironic, as 10,600 firms represent less than 4% of the total SME business.  In contrast, at least 3,700 businesses ceased operations in each month from March to June 2020, with a recent high of almost 4,000 in July 2020, government statistics show. This suggests that uptake of government supported loan programmes is still low, and funds are still not reaching the majority of SMEs.

The need for a central lending platform

One of the possible reasons why businesses are not taking advantage of the government supported loan programmes is to do with the processes required to access these loans. Today, the process for accessing government supported loan programmes is made up of two parts: 1) pre-application, and 2) application.

The ‘pre-application’ process requires SMEs to first approach any of the Participating Financial Institutions (PFIs) and file an application. This supposedly straightforward process can sometimes be a long and burdensome one, especially with the back-and-forth that occurs when SMEs are asked to provide multiple documents to support the application. This burden is multiplied should SMEs seek to compare loan rates and conditions offered at other PFIs. At a time when revenue has slowed down, every cent counts, and hence the number of applications to multiple banks for one single facility increases.

The process does not need to be so arduous. When SMEs already have a mountain of worries, access to government support should not be another. The solution is a central lending platform, with the following features:

  1. Reducing the number of steps that SMEs take to access government-supported loans
  2. Providing a one-stop web-based platform that allows SMEs access to all PFIs in one place
  3. Allowing SMEs to complete a single application once for applications across multiple PFIs
  4. Confirming eligibility for these government-backed loans upfront, not at the end after PFIs have reviewed and rejected the application
  5. Enabling clarity and transparency on the timelines for when PFIs will respond to SME applications
  6. Providing SMEs ease of comparison of the various PFIs offerings
  7. Linking the central lending platform to other banking systems, including CRM systems, AML/KYC systems, loan disbursement systems, etc.

Benefits of a central lending platform 

To create a successful central lending platform, there need to be clear benefits to the various vested stakeholders – SMEs, PFIs, and the government. These are outlined in the table below.

Group Example of benefits
SMEs ●      Convenient access to relief measures
●      Central platform for financing requirements
●      Access to competitive rates and conditions
PFIs ●      Reduced administrative burden of collecting documents and reviewing SME eligibility for relief through automated assessment
●      Improved awareness of competitiveness in the industry
●      Opportunity to use digitisation to meet demands of under-served SME segments
Government ●      One-stop to govern all applicable credit facilities granted under government relief package
●      Ready and available consolidated statistics of outstanding facilities and performance
●      Availability of real-time tracking of relief offered to SMEs

 
Government support needed

For such a central lending platform to be successful, there needs to be sufficient support from SMEs, lenders, and the government. While all stakeholders are key, government support for the platform will be most crucial, for three main reasons:

  1. Visibility – to ensure the platform has a sufficient spotlight and that SMEs and lenders alike are aware of, and ultimately use, the platform
  2. Credibility – to ensure the platform can be trusted and has been validated as such by the government
  3. Sustainability – to ensure the platform is future-proof and will remain effective in serving the public in its intended purpose

Only with government support will such a platform be able to secure the necessary visibility, credibility and sustainability that is needed for its successful implementation.

Future possibilities: SME credit bureau and open banking

In Singapore, almost half of the city-state’s GDP came from SMEs alone in 201     9, and this highlights a need to better serve the SME community.

Besides the development and adoption of a central lending platform, other steps are also necessary to better serve the SME community – such as through the establishment of an SME credit bureau, and piloting open banking for SME customers.

Despite the expected growth in the number of SMEs and a clear need for financing opportunities, information about SMEs can be limited, leading to a longer and more arduous process to access financial products and services, including loans. The establishment of an SME credit bureau to collect and provide credit information for SMEs specifically would be one way to better serve such companies, while also benefiting FIs with more efficient and reliable credit risk assessment.

Further, as customers’ needs and banks’ expectations evolve over time, it is imperative that Singapore FIs work towards full adoption of open banking. Such an initiative will provide opportunities to open up the banking industry, ignite innovation and radically enhance the public’s interaction and experience with the financial services industry, according to recent PwC research. This is especially relevant for SMEs, in order to meet their complex and multifaceted business needs.

While the Covid-19 pandemic has dampened the global economic outlook, the Singapore government took quick steps to intervene and introduce a slew of initiatives and programmes to support the SME sector. Yet, the impact and effectiveness of these measures will only be fully seen if they are accessible when required by those who need it most.

Otherwise, well-intended support initiatives and programmes risk becoming a “white elephant”.

Irene Liu is a Partner and Shierly Mondianti is a Manager, both specialising in risk & regulation for the banking sector in PwC’s Southeast Asian consulting arm.

[1] Enterprise Financing Scheme, Temporary Bridging Loan Programme, Enterprise Singapore, 2019
[2] Digital Acceleration Grant, Monetary Authority of Singapore, 2020
[3] “New S$6 Million Grant Scheme to Support Singapore FinTech Firms”, Business Times Singapore, 13 May 2020
[4] Ibid.,
[5] Singapore Jobs Support Scheme – Singapore Budget 2020, Ministry of Finance, May 2020
[6] “Temporary relief for businesses and individuals unable to fulfil contractual obligations”, Ministry of Law, April 2020

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