Market-based support benefits MSMEs more than subsidies or loans

To help MSMEs recover from the pandemic, the Asian Development Bank is urging governments to consider more targeted and differentiated assistance.
By: | April 29, 2021

“Given the different abilities of MSMEs (micro, small and medium enterprises) for coping with the pandemic and quarantine measures, governments should pay more attention to implementing policy measures that are differentiated by firm size, type, location, and sector, and devising an optimal approach that neither impedes national revenue nor increases the budgetary burden post-COVID-19,” said Shigehiro Shinozaki, senior economist at the Manila-based Asian Development Bank’s (ADB) economic research and regional cooperation department. 

“Instead of subsidies, having more public-private sector coordination and a market-based approach would be worthy of consideration for business support programmes,” Shinozaki said.

For example, governments could consider setting up a business-restructuring fund backed by a special tax on firms or groups that benefited from the lockdown. The fund could be used to help firms that were adversely impacted by the pandemic. 

In the Philippines, the government had offered loans to MSMEs via the COVID-19 Assistance to Restart Enterprises, as well as injected additional capital into state-run lenders Development Bank of the Philippines and Land Bank of the Philippines.

However, the take-up rate has not been high due to fears of inability to pay back the loans, according to Shinozaki, who added that “the deterioration of banks’ balance sheets is another concern”. 

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“Instead of capital injections to banks, the government could encourage banks to strengthen their self-funding such as through the issuance of asset-backed securities based on MSME loan assets,” he added. 

In addition, helping MSMEs adapt to digital platforms is crucial for the survival of MSMEs as more small businesses move online to offer their goods and services amid the pandemic, Shinozaki said, according to Inquirer.