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ACCA: Leaders must invest in financial education
Governments and policy makers must encourage financial literacy among small businesses, remove uncertainty in regulation and encourage the publication of more information to enable entrepreneurs to more easily gain access to new and different forms of funding, according to the Global Forum for Small and Medium Sized Enterprises (SMEs) —a discussion forum developed by the Association of Chartered Certified Accountants (ACCA). For its latest policy paper, Innovations in access to finance for SMEs, the Global Forum for SMEs reviewed a broad range of innovations aimed at directing more finance to SMEs—from Alipay in China and Peer to Peer lenders in the UK, to Kabbage in the US, M-Shwari in Kenya or Cadenas Productivas in Mexico. The Forum’s aim was to find out more about what factors give rise to financing innovations, what measures could help them reach more businesses, and what obstacles are holding them back from their potential.
The research looked at the major trends driving innovation. It found that businesses and investors have lost faith in banks, while new capital and liquidity regulations are forcing banks away from traditional lending to small businesses. Meanwhile, ultra-low interest rates have sent investors in some parts of the world looking for better returns on their money, prompting them to explore new asset classes such as SME credit, trade credit and early stage equity. In addition, there has been a rise in e-commerce platforms and payment systems which are creating their own financial information; an increase in the use of real-time information by alternative finance providers; and online financial intermediation is becoming increasingly acceptable to businesses and investors. International co-ordination, by the G20 leaders and the World Bank Group among others, has highlighted examples of financial innovation in many parts of the world, drawn attention to common barriers to SME finance and helped spread best practices.
The Forum also identified three types of obstacles to innovation in SME funding. First, there is a lack of financial education among SME owners. ACCA has urged policymakers to reconsider their approach to financial literacy, focusing on a “business plan first” strategy where qualified finance professionals deliver “just-in-time” training and mentoring based on the business’ needs.
Second, there is a lack of appropriate financial infrastructure from credit databases and payment systems to asset registries and credit default data, in much of the world. Making this information public has the potential to transform intermediation. Third, there are substantial uncertainties in legislation, regulation and in accounting rules which need to be resolved. The most substantial issues highlighted by the Forum relate to the protection of minority shareholder rights; the classification of receivables under accounting rules in multi-lender platforms or supply chain finance (SCF) programmes; the status of factored receivables in bankruptcy; the regulatory risk weightings applied to Bank Payment Obligations, and the regulatory status of new alternative funding providers.
Rosanna Choi, chair of ACCA’s Global Forum for SMEs, said: “Our research suggests a worrying lack of financial awareness among the world’s entrepreneurs; as the SME sector’s most trusted financial advisers, finance professionals have proven they can lead the drive for financial education, and we call on policymakers to engage the profession more fully in their efforts.”
She added: “On the whole, the Forum does not view regulation as an enemy of financial innovation. Of course the banks’ ability to finance businesses has been hit by regulation; in some cases, this has been vague or ill-thought-out. Other providers are certainly taking advantage of the banks’ regulatory weaknesses. But it is clear to us that smart regulation can positively spur innovation by building much-needed financial infrastructure and offering greater certainty to finance providers and users.” Brenda Lee Tang, head of ACCA Caribbean said: “ Finance professionals have the knowledge to help innovative businesses connect the dots.”