Government-Backed SME Loans Are Boosting Singapore Economy

Mihai Cristea 14/12/2020 | 15:27

In most countries, the SME sector is the main economic engine. One of the critical factors hindering SME growth, however, is poor access to finance. Given the bank-centered financial system developed in Asia, the banking sector plays a pivotal role in funding small and medium-sized enterprises. 


On the other hand, under the continuing global economic instability, bank financing for small and medium-sized enterprises is a constraint.

Due to their quantitative influence on the national economy and the empirical results of generating employment, promoting a stable market climate, and expanding the manufacturing base, SMEs are a driving force of economic and social stability. They can also contribute to rural economies’ vitalization and play a key role in fostering intra-regional trade.

Importance of SMEs

Small and medium-sized enterprises (SMEs) are enterprises that maintain below an individual threshold income, assets, or a certain number of employees. Specific size requirements must be met, and the sector in which the company works is also occasionally taken into account. Small and mid-size enterprises (SMEs) play an essential role in the economy, albeit small. They vastly outnumber large corporations, employ large numbers of people, and are typically entrepreneurial to shape innovation.

Singapore’s Economy

For the first half of the year, Singapore announced one of Asia’s worst economic contractions. As lockdown initiatives worldwide aimed at halting the coronavirus’s spread concluded much of global economic activity, the transparent and trade-dependent economy has taken a hard hit.

In the Parliament, a proposal was announced to support and provide additional assistance to different companies to deal with the aftermath of the COVID-19 outbreak.  More or less, it is to resume once again the operations of companies after the measures have been lifted.

Due to these recent events, the government has decided to raise the risk share of loans under these multiple loan financing schemes up to 90%, which was previously 80%. Following lockdown steps around the world to slow the spread of the coronavirus, the country’s accessible and trade-dependent economy has been among the hardest hit in Asia.

Credit Access to Companies

It was stated by Deputy Prime Minister Heng Swee Keat that despite the uncertainty caused by the coronavirus outbreak, funding support for companies would be boosted to ensure continued credit access. Moreover, the Temporary Bridging Loan Programme, SME Working Capital Loan Program, and the Enterprise Financing Scheme Trade Loan are included.

He added that banks and finance companies might also apply for low-cost financing for new loans granted under the SME Working Capital Loan and Temporary Bridging Loan programs through the new MAS Singapore Dollar facility.

If they use this facility for financing, they must commit to passing on the savings to borrowers. Via job growth, creativity, and competition, small and medium enterprises (SMEs) stimulate domestic demand: they can be a driving force behind a resilient national economy. 

Furthermore, SMEs involved in global supply chains of production have the potential to promote foreign trade. Therefore, prioritization of SME production is crucial for fostering sustainable economic growth in most Asian economies.

In terms of market, size, and management style, SMEs comprise a variety of firms. A one-size-fits-all solution to SME funding will, therefore, be futile. The required funding scheme varies according to the SME’s growth phase and the level of economic development of the host nation. Moreover, the financing of small and medium-sized enterprises (SMEs) is not a single solution for building a resilient SME base for inclusive economic growth.

Temporary Bridging Loan Programme 

As announced in the Solidarity Budget 2020, qualifying companies may borrow up to 5 million from participating financial institutions under the TBLP, with interest rates capped at 5% pa. (PFIs). Entry to working capital for business needs is supported by the Temporary Bridging Loan Programme (TBLP).

Qualified undertakings under the TBLP can also apply for a deferral of principal repayment, subject to evaluation by the PFIs, to help them reduce their monthly cash outflow. Businesses must be licensed and have a local shareholding of at least 30 percent in Singapore. Other specifications are subject to internal credit evaluation and standards by the participating financial institutions. 

Reservations on Finances

Singapore’s Deputy Prime Minister and Minister of Finance, Heng Swee Keat, announced an additional 8 billion Singapore dollars ($5.8 billion) to help the coronavirus-pandemic-pressured economy. 

According to Heng, there are no plans for these measures to draw on past reserves previously approved. Heng stated that Singapore would not draw on its resources to finance the latest set of assistance.

They plan to finance these steps by reallocating funds from other regions, such as construction expenses, which have been delayed due to Covid-19. 

On the authority of Heng, who is the Minister for Economic and Policy coordination, the resulting economic impact was serious and the global economy remains very weak and any recovery will depend on how well the spread of the virus is contained in nations.

The extensions of current policies include many of the support initiatives stated by the Deputy Prime Minister. First, there would be an extension of wage subsidies to March 2021 by up to seven months. 

The amount of grants that can be earned by companies depends on the “projected recovery” of the various sectors. Second, there has been an extra $187 million in relief for Singapore’s aviation sector ($136.5 million).

Third, cash payouts for every unemployed Singaporean and low-wage workers have endured substantial income loss. Fourth, Heng’s latest initiatives announced include Singapore’s $320 million in ‘tourism credits’ for Singaporeans to promote domestic tourism.

In conclusion, having small and medium-sized enterprises (SMEs) at all levels of the formal financial system is useful for rebalancing the global economy. In a region, SMEs are a critical component of economic and social stability. Improving financial access for SMEs is expected to bring many benefits, including improving financial access for small and medium-sized enterprises.

These benefits bring the quality of production, enhance new market opportunities, stimulate investment and consumption at the national level, and surplus corporate savings mobilization.

Improving intra-regional exchange will be encouraged by access to finance for sub-contracted SMEs. It is expected that these national-level policy-oriented initiatives would indirectly accelerate global rebalancing—besides the establishment of financial infrastructure to support micro start-ups and micro-start-ups. 

Micro-enterprises in low-income households would stimulate income gains, leading to poverty alleviation, expansion of social security, and even business growth.

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