Creative financing

ACCESS to finance remains a key challenge to the development of Small and Micro Enterprises (SMEs) but innovative financing mechanisms such as small-scale offers regimes and investment-geared crowdfunding can help bridge the financing gap, according to a new report from the Asian Development Bank (ADB).

Titled: “Innovative Financing Mechanisms in the Pacific’, the report, published this week by ADB’s Pacific Private Sector Development Initiative (PSDI), explores the potential of alternative sources of financing which can lower the barriers to accessing finance, as a solution to some of the funding challenges experienced by businesses in Fiji and the broader Pacific region.

“Innovative financing mechanisms can really broaden the options available to Pacific businesses seeking finance,” said Jeremy Cleaver, PSDI’s senior finance sector specialist.

“They offer more safeguards and structure than the informal funding through networks and family connections that is common in the region, but without some of the constraints of traditional debt and equity financing, like the requirement for collateral, equity thresholds, and credit history, along with long processes, and high transaction costs.”

Report’s author and financial sector specialist Jinita Prasad said the paper offers guidance around how to make the mechanisms work in Pacific economies.

“This includes considering the suitability of these mechanisms, which will depend on various factors, such as the capabilities and willingness of the companies seeking finance, the savviness of investors, and whether the appropriate legal and regulatory frameworks are in place, as well as ensuring that intermediaries have the expertise to manage the mechanisms effectively.”