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Want to grow SMEs? Identify well managed SMEs

In Accounting, Corporate governance, Economy on 09/01/2018 at 9:55 am

In 2018, another bad yr for SMEs, I took a cheap shot at Inderjit Singh and Jack Sim because they, Tay Kheng Soon and the other usual suspects last yr came up with yet another a wish list for SMEs (See below). Nothing really new in the list.

I think rather than banging their heads against the wall, asking “More money PAP” they should rethink their entire approach about wanting more tax payers money to be thrown at SMEs.

Since, Turban and Toilet Men keep saying the govt should start thinking out of the box, maybe they should set a good example and stop banging their turban and head, respectively, against the banks’ and govt doors, and think of creative ways that they, with the help of the govt can help SMEs.

Here’s three constructive, nation-building suggestions.

One is persuading the govt to allow HDB flats to be used as collateral for loans.

In HDB flat: Dead Capital, I wrote

And the PAP administration KPKBs about the need to create an entrepreneurial, risk taking society? Entrepreneurs need funding and banks and other financial institutions need collateral when making risky loans. And property is the best collateral. No collateral no funding.

They should also try to granulate the SME universe i.e classify the SMEs into different categories by turnover, staff seize or other criteria they think relevant and then focus on what categories need what help. And where to prioritise

Let me explain. SMEs cover a wide spectrum.

Small Medium Enterprises (SME) in Singapore are defined as companies with at least 30% local shareholding, group annual sales turnover of less than $100 million or group employment size of not more than 200 workers (Skills Connect, 2013). Out of 180,000 SME’s in Singapore, 70% of them have a turnover of less than a million and commonly referred to as micro-SME’s (Scully, 2014).

http://sdh.edu.sg/wp-content/uploads/2016/11/Embracing-Structured-Internship-1.pdf

For a start this means subcategorising the 30%, then the 70%, so that a nuanced, granular view of the SME universe is possible. This will help policy makers etc analyse the group better, and hopefully lead to better policies to help SMEs.

Related to this segmentation is the need to create some kind of quality assurance mark to help credit providers and equity investors differentiate the sheep from the goats. 

As I’ve said before, I’ve given up investing in listed SMEs because. in the main, the management of listed SMEs are determined to reward the controlling shareholders (management) rather than create shareholder value for investors. Family members (daughters-in-law for example) are paid do nothing, while sons are overpaid to do simple jobs.

And as these SMEs go thru a vetting process before they are listed. What more about the vast majority of SMEs?

And that’s before the suspicion especially for non listed SMEs that the accounts are “fake” and that external financing for the business will find their way into the owners’ pockets. Hence all those personal guarantees that the banks ask for.

Even SME champion Inderjit Singn has privately conceded that there are badly run SMEs, though one of his pals told Chris K, when asked by Chris K, how many SMEs are really professionally and competently run,”We are not here to moralise issues”. 

But as Chris K  points out when commenting on commenting on a story about $40 million of bogus SkillsFuture claims

giving grants or providing soft financing to firms that are not professionally and competently run is a moral hazard.

While there are various platforms for SMEs to raise funds from suckers investors, there’s a need for good ways that financiers and investors can use to identify “good” SMEs. True there’s a SME credit agency (https://www.dpgroup.com.sg/smecreditrating/), but it ain’t enough.

So Turban and Toilet Men should be thinking of creating and administrating a methodology that can identify well run SMEs. An SME can then approach the organisation administering the methodology and for a fee get certified as a well run SME. If it fails to get certified, it and the certifier keep quiet, ensuring that the matter remains private and confidential.

Investors and financiers can then feel more comfortable when “certified” SMEs approach them for funds.

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SME wish list

  • Creating a single government agency focused on helping SMEs and start-ups with growth, financing and internationalisation;
  • Improving access to debt and equity financing by setting up institutions like an SME bank and a private equity exchange;
  • Setting up a cost competitiveness committee to address rising business and living costs;
  • Helping SMEs manage the cost of industrial rent and land by increasing the share of industrial space owned by JTC;
  • Making it easier for companies and research institutes to commercialise intellectual property, for instance by introducing short-term licensing; and
  • Introducing a minimum wage scheme tied to compulsory regular upgrading of skills.

 

 

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  1. To be fair to them, they are talking about the 30% not the 70%

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