Fu­ture of SME lend­ing

The UB Post - - Front Page - By B.CHINTUSHIG

In the last week or so, Mon­go­lian so­cial me­dia has been flooded with news and re­sponses to the small to medium en­ter­prise (SME) lend­ing con­tro­versy. The con­tro­versy sur­rounds sev­eral key politi­cians who have al­legedly mis­used their power to fun­nel bil­lions of MNT in SME fi­nanc­ing to com­pa­nies owned by fam­ily mem­bers of close as­so­ci­ates. This has un­der­stand­ably caused pub­lic outcry and calls for res­ig­na­tion. Si­mul­ta­ne­ously, the re­form on the mech­a­nisms of SME lend­ing has been brought into the spot­light.

On the po­lit­i­cal side of the is­sue, sev­eral of the politi­cians in ques­tion have in­ad­ver­tently ad­mit­ted that fam­ily mem­bers have re­ceived SME loans but de­nied any spe­cial priv­i­lege. One politi­cian in par­tic­u­lar, MP Ya.Sod­baatar, the re­cently ap­pointed Min­is­ter of Roads and Trans­porta­tion, ad­mit­ted when ques­tioned by me­dia that his wife and her friends started a busi­ness and their com­pany re­ceived a loan. This was con­firmed by SME De­vel­op­ment Fund of­fi­cial Sh.Su­gar, who said that the com­pany in ques­tion, Epato Anar­vaan, did re­ceive a loan.

...Sev­eral of the politi­cians in ques­tion have in­ad­ver­tently ad­mit­ted that fam­ily mem­bers have re­ceived SME loans but de­nied any spe­cial priv­i­lege...

What has been done in terms of abuse of power and mis­ap­pro­pri­a­tion of state funds is for the In­de­pen­dent Author­ity Against Cor­rup­tion and the Ad­min­is­tra­tive Courts to de­cide. Cur­rently, we know that sev­eral close as­so­ci­ates of key politi­cians re­ceived SME loans but any abuse of power or other al­le­ga­tions must be con­cluded by an in­ves­ti­ga­tion. What we can con­clude is that the SME lend­ing mech­a­nism is clearly flawed to a wor­ry­ing de­gree. It is non-trans­par­ent and the ex­act de­tails re­gard­ing se­lec­tion are hazy at best. It leaves am­ple room for shady back­door deal­ings and is an open source for mis­ap­pro­pri­a­tion of state funds.

Small and medium-sized en­ter­prises re­port­edly make up 98 per­cent of all en­ter­prises in Mon­go­lia, ac­count­ing for a large seg­ment of the econ­omy. How­ever, ac­cord­ing to the Asian De­vel­op­ment Bank In­sti­tute (ADBI), SMEs have not been able to fully grow to their po­ten­tial due to a lack of fund­ing. More than 30 per­cent of SMEs cite lack of ac­cess to fi­nance as the fore­most con­straint to their busi­ness. Only 10 per­cent of nearly 37,000 Mon­go­lian SMEs have ac­cess to fi­nanc­ing by com­mer­cial banks. SMEs are cru­cial to not only Mon­go­lia’s econ­omy but is the back­bone of nearly all Asian economies. On av­er­age, 98 per­cent of all en­ter­prises in Asia are SMEs, em­ploy­ing 66 per­cent of the na­tional la­bor force and 38 per­cent of GDP.

As a re­sult, any po­lit­i­cal in­ter­fer­ence quits the life­line and pre­vents the growth of any en­ter­prises with po­ten­tial. This is ad­e­quate rea­son to ar­gue for the SME De­vel­op­ment Fund to en­joy more au­ton­omy and sep­a­ra­tion from the po­lit­i­cal ap­pa­ra­tus. If the al­le­ga­tions are proven to be true, the fact that MPs can pull strings to ap­prove SME loans to who­ever they please is alarm­ing.

In light of the con­tro­versy, many have taken to so­cial me­dia to pro­pose that SME lend­ing be­come more trans­par­ent by mak­ing it pub­lic. Some have pro­posed that SME lend­ing be or­ga­nized in the same for­mat the re­al­ity tele­vi­sion show “Shark Tank” is. The TV show, launched in 2009 in the US and adopted into a Mon­go­lian ver­sion in 2017, fea­tures sev­eral judges who are suc­cess­ful busi­ness­men and busi­ness­women in their sec­tors to judge proposals by par­tic­i­pants. At the end, the judges or the sharks choose whether to in­vest in a busi­ness or not.

The think­ing be­hind im­ple­ment­ing this for­mat is that it will make it a lot more trans­par­ent and fair on who re­ceives fund­ing. Pro­po­nents of this idea hope for a more of­fi­cial, but less costlier ver­sion in terms of en­ter­tain­ment value. While the idea is in­no­va­tive, there are some po­ten­tial draw­backs. Is­sues such as the se­lec­tion of the judges and the par­tic­i­pants will likely be prob­lem­atic.

Look­ing at the pre­vi­ous sys­tem for SME lend­ing, the SME De­vel­op­ment Fund pro­vided 745.5 bil­lion MNT in lend­ing from 2009 to 2016. The ma­jor­ity of the lend­ing was used to in­crease op­er­at­ing cap­i­tal and pur­chase new equip­ment. Ac­cord­ing to the Min­istry of Food, Agri­cul­ture, and Light In­dus­try in 2017, the rev­enue of SMEs that re­ceived the loans rose by 20 to 30 per­cent. How­ever, this fig­ure was not au­dited and the cred­i­bil­ity of the state­ment is ques­tion­able due to cur­rent cir­cum­stances.

In sim­i­lar fash­ion, Mon­gol Bank and the De­vel­op­ment Bank of Mon­go­lia strug­gled with po­lit­i­cal in­ter­fer­ence and sab­o­tage for as long as its ex­is­tence. Only with the IMF pro­gram and leg­isla­tive re­form, th­ese two government ap­pa­ra­tuses seem to have re­gained some sem­blance of au­ton­omy. In light of the con­tro­ver­sies with the SME fund­ing, the same needs to hap­pen with the SME De­vel­op­ment Fund. Even ec­cen­tric ideas such as re­for­mat­ting SME lend­ing into a re­al­ity tele­vi­sion shows should be en­ter­tained. But at the end of the day, any is­sues con­cern­ing the government and its ser­vices all leads to good gov­er­nance and elim­i­na­tion of cor­rup­tion.

Newspapers in English

Newspapers from Mongolia

© PressReader. All rights reserved.