Improving Micro-, Small and Medium Enterprise’s Access to Start-up Financing in ASEAN Countries
Lack of access to finance constitutes a major setback to the development of the micro-, small and medium-sized enterprise (MSME) sector in the countries of the Association of Southeast Asian Nations (ASEAN). MSMEs are confronted with stringent funding constraints in traditional lending and capital markets, in particular at the early stages of their activity. Demand and supply of capital to MSMEs thus entails more complex issues compared to the larger firms. This paper presents a number of policy actions that have the potential to mitigate the financing challenges faced by MSMEs in ASEAN at the start-up stage by enhancing the potential of alternative funding sources such as business angel investment, crowdfunding, venture capital investment and SME stock markets.
© 2022 The Author(s). Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Maran, R. (2022). Improving Micro-, Small and Medium-sized Enterprise Access to Start-up Financing in ASEAN Countries. Journal of Research, Innovation and Technologies, Volume I, 2(2), 121-139. https://doi.org/10.57017/jorit.v1.2(2) .03
[1] Acharya, V. V., and Pedersen, L. H. (2005). Asset pricing with liquidity risk. Journal of Financial Economics, 77(2), 375-410. https://doi.org/10.1016/j.jfineco.2004.06.007
[2] Acharya, V. V., Berger, A. N., and Roman, R. A. (2018). Lending implications of U.S. bank stress tests: Costs or benefits? Journal of Financial Intermediation, 34, 58-90. https://doi.org/10.1016/j.jfi.2018.01.004
[3] ADB (undated), ADB COVID-19 Policy Database. Asian Development Bank. https://covid19policy.adb.org/. Accessed on 19th of July, 2022.
[4] Agyapong, D., and Attram, A. B. (2019). Effect of owner-manager’s financial literacy on the performance of SMEs in the Cape Coast Metropolis in Ghana. Journal of Global Entrepreneurship Research, 9(67). https://doi.org/10.1186/s40497-019-0191-1
[5] Agyei, S. K., and Nsiah, C. (2018). Culture, financial literacy, and SME performance in Ghana. Cogent Economics & Finance, 6(1). https://doi.org/10.1080/23322039.2018.1463813
[6] Amihud, Y., and Mendelson, H. (1986). Asset pricing and the bid-ask spread. Journal of Financial Economics, 17(2), 223-249. https://doi.org/10.1016/0304-405X(86)90065-6
[7] Antretter, T., Siren, C., Grichnik, D., and Wincent, J. (2020). Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks. Journal of Business Venturing, 35(5). https://doi.org/10.1016/j.jbusvent.2020.106043
[8] Apergis, N., Artikis, P. G., and Kyriazis, D. (2015). Does stock market liquidity explain real economic activity? New evidence from two large European stock markets. Journal of International Financial Markets, Institutions and Money, 38, 42-64. https://doi.org/10.1016/j.intfin.2015.05.002
[9] Belleflamme, P., Lambert, T., and Schwienbacher, A. (2013). Individual crowdfunding practices. Venture Capital, 15(4), 313-333. https://doi.org/10.1080/13691066.2013.785151
[10] Block, J. H., Fisch, C. O., Obschonka, M., and Sandner, P. G. (2019). A personality perspective on business angel syndication. Journal of Banking & Finance, 100, 306-327. https://doi.org/10.1016/j.jbankfin.2018.10.006
[11] Bongomin, G. O. C., Ntayi, J. M., Munene, J. C., and Malinga, C. A. (2017). The relationship between access to finance and growth of SMEs in developing economies: Financial literacy as a moderator. Review of International Business and Strategy, 27(4). https://www.emerald.com/insight/content/doi/10.1108/RIBS-04-2017-0037/full/html
[12] Bonini, S., Capizzi, V., Valletta, M., and Zocchi, P. (2018). Angel network affiliation and business angels’ investment practices. Journal of Corporate Finance, 50, 592-608. https://doi.org/10.1016/j.jcorpfin. 2017.12.029
[13] Bonnet, C., Capizzi, V., Cohen, L., Petit, A., and Wirtz, P. (2021). What drives the active involvement in business angel groups? The role of angels' decision-making style, investment-specific human capital and motivations. Journal of Corporate Finance. https://doi.org/10.1016/j.jcorpfin.2021.101944
[14] Buttice, V., Di Pietro, F., and Tenca, F. (2020). Is equity crowdfunding always good? Deal structure and the attraction of venture capital investors. Journal of Corporate Finance, 65. https://doi.org/10.1016/j.jcorpfin. 2020.101773
[15] Casey, E., and O’Toole, C. M. (2014). Bank lending constraints, trade credit and alternative financing during the financial crisis: Evidence from European SMEs. Journal of Corporate Finance, 27, 173-193. https://doi.org/10.1016/j.jcorpfin.2014.05.001
[16] Cason, T. N., and Zubrickas, R. (2019). Donation-based crowdfunding with refund bonuses. European Economic Review, 119, 452-471. https://doi.org/10.1016/j.euroecorev.2019.08.003
[17] Cavallo, A., Ghezzi, A., Dell’Era, C., and Pellizzoni, E. (2019). Fostering digital entrepreneurship from startup to scaleup: The role of venture capital funds and angel groups. Technological Forecasting and Social Change, 145, 24-35. https://doi.org/10.1016/j.techfore.2019.04.022
[18] CCAF, ADBI and FinTechSpace (2019). ASEAN FinTech Ecosystem Benchmarking Study. Cambridge. https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-ccaf-asean-fintech-ecosystem-benchmarking-study.pdf
[19] Chen, B. S., Hanson, S. G., and Stein, J. C. (2017). The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labour Markets. NBER Working Paper, No. 23843. National Bureau of Economic Research. https://www.nber.org/papers/w23843
[20] Chiappini, R., Montmartin, B., Pommet, S., and Demaria, S. (2022). Can direct innovation subsidies relax SMEs’ financial constraints? Research Policy, 51(5). https://doi.org/10.1016/j.respol.2022.104493
[21] Chordia, T., Sarkar, A., and Subrahmanyam, A. (2005). The Joint Dynamics of Liquidity, Returns, and Volatility across Small and Large Firms. Federal Reserve Bank of New York Staff Reports, No. 207. Federal Reserve Bank of New York. https://www.newyorkfed.org/research/staff_reports/sr207.html
[22] Cipollone, A., and Giordani, P. E. (2019). Entrepreneurs meet financiers: Evidence from the business angel market. Journal of Business Venturing, 34(5).https://doi.org/10.1016/j.jbusvent.2018.11.003
[23] Cortes, K. R., Demyanyk, Y., Lei, L., Loutskina, E., and Strahan, P. E. (2020). Stress tests and small business lending. Journal of Financial Economics, 136(1), 260-279. https://doi.org/10.1016/j.jfineco.2019.08.008
[24] Cox, K. C., Lortie, J., and Stewart, S. A. (2017). When to pray to the angels for funding: The seasonality of angel investing in new ventures. Journal of Business Venturing Insights, 7, 68-76. https://doi.org/10.1016/ j.jbvi.2017.03.003
[25] Cusolito, A. P., Dautovic, E., and McKenzie, D. (2020). Can government intervention make firms more investment-ready? A randomized experiment in the Western Balkans. Working Paper Series, No.2391. European Central Bank. https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2391~052bcf0d3d.en.pdf
[26] De Clercq, D., Meuleman, M., and Wright, M. (2012). A cross-country investigation of micro-angel investment activity: The roles of new business opportunities and institutions. International Business Review, 21(2), 117-129. https://doi.org/10.1016/j.ibusrev.2011.02.001
[27] Demirguc-Kunt, A., Martinez Peria, M. S., and Tressel, T. (2020). The global financial crisis and the capital structure of firms: Was the impact more severe among SMEs and non-listed firms? Journal of Corporate Finance, 60. https://doi.org/10.1016/j.jcorpfin.2019.101514
[28] ECB (2020). Financial Stability Review, May 2020. European Central Bank. https://www.ecb.europa.eu/pub/ financial-stability/fsr/html/ecb.fsr202005~1b75555f66.en.html
[29] Edwards, A., and Todtenhaupt, M. (2020). Capital gains taxation and funding for start-ups. Journal of Financial Economics, 138(2), 549-571. https://doi.org/10.1016/j.jfineco.2020.06.009
[30] Ermisch, J. F., & Huff, W. G. (1999). Hypergrowth in an East Asian NIC: Public policy and capital accumulation in Singapore. World Development, 27(1), 21-38. https://doi.org/10.1016/S0305-750X(98)00101-6
[31] European Commission (2019). Capital Markets Union: Commission welcomes agreement on new rules to further improve access to capital markets for smaller businesses. Press release, 6 March 2019. European Commission. https://ec.europa.eu/commission/presscorner/detail/en/IP_19_1568
[32] European Commission (undated). COSME - Europe’s programme for small and medium-sized enterprises. European Commission. https://ec.europa.eu/growth/smes/cosme_en
[33] Fatehi, S., and Wagner, M. R. (2019). Crowdfunding via Revenue-Sharing Contracts. Manufacturing & Service Operations Management, 21(4), 713-948. https://doi.org/10.1287/msom.2018.0729
[34] Gao, G-X., Fan, Z-P., Fang, X., and Lim, Y. F. (2018). Optimal Stackelberg strategies for financing a supply chain through online peer-to-peer lending. European Journal of Operational Research, 267(2), 585-597. https://doi.org/10.1016/j.ejor.2017.12.006
[35] Gerber, E. M., and Hui, J. (2013). Crowdfunding: Motivations and deterrents for participation. ACM Transactions on Computer-Human Interaction, 20(6), 1-32. https://doi.org/10.1145/2530540
[36] Gleasure, R., and Feller, J. (2016). Does Heart or Head Rule Donor Behaviors in Charitable Crowdfunding Markets? International Journal of Electronic Commerce, 20(4), 499-524. https://doi.org/10.1080/ 10864415.2016.1171975
[37] Gregson, G., Bock, A. J., and Harrison, R. T. (2017). A review and simulation of business angel investment returns. Venture Capital, 19(4), 285-311. https://doi.org/10.1080/13691066.2017.1332546
[38] Guiso, L., and Jappelli, T. (2005). Awareness and Stock Market Participation. Review of Finance, 9(4), 537-567. https://doi.org/10.1007/s10679-005-5000-8
[39] Han, T., Park, K. G., and Stanko, D. (2018). Are pension funds a stabilising factor in financial markets? Evidence from four countries? IOPS Working Papers on Effective Pensions Supervision, No. 31. International Organisation of Pension Supervisors. http://www.iopsweb.org/WP-31-Are-pension-funds-a-stablising-factor-in-financial-markets.pdf
[40] Harrison, R., Scheela, W., Lai, P. C., and Vivekarajah, S. (2017). Beyond institutional voids and the middle-income trap: The emerging business angel market in Malaysia. Asia Pacific Journal of Management, 35, 965-991. https://doi.org/10.1007/s10490-017-9535-y
[41] Harrison, R. (2018). Crossing the chasm: the role of co-investment funds in strengthening the regional business angel ecosystem. Small Enterprise Research, 25(1), 3-22. https://doi.org/10.1080/13215906. 2018.1428910
[42] Harrison, R. T., Bock, A. J., and Gregson, A. (2020). Stairway to heaven? Rethinking angel investment policy and practice. Journal of Business Venturing Insights, 14. https://doi.org/10.1016/j.jbvi.2020.e00180
[43] Harwood, A., and Konidaris, T. (2015). SME Exchanges in Emerging Market Economies: A Stocktaking of Development Practices. Policy Research Working Paper, No. 7160. World Bank, Washington, DC. https://openknowledge.worldbank.org/bitstream/handle/10986/21381/WPS7160.pdf?sequence=1%26isAllowed=y
[44] Hellmann, T., Schure, P., and Vo, D. H. (2021). Angels and venture capitalists: Substitutes or complements? Journal of Financial Economics, 141(2), 454-478. https://doi.org/10.1016/j.jfineco.2021.04.001
[45] Hogan, T., Hutson, E., and Drnevich, P. (2017). Drivers of External Equity Funding in Small High-Tech Ventures. Journal of Small Business Management, 55(2), 236-253. https://www.tandfonline.com/doi/full/ 10.1111/jsbm.12270
[46] Howell, S. T., and Mezzanotti, F. (2019). Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits. NBER Working Paper, No. 26486. National Bureau of Economic Research. https://www.nber.org/papers/w26486
[47] Hussain, J., Salia, S., and Karim, A. (2018). Is knowledge that powerful? Financial literacy and access to finance: An analysis of enterprises in the UK. Journal of Small Business and Enterprise Development, 25(6), 985 -1003. https://doi.org/10.1108/JSBED-01-2018-0021
[48] IEA (2019). Southeast Asia Energy Outlook 2019. International Energy Agency. https://iea.blob.core. windows.net/assets/47552310-d697-498c-b112-d987f36abf34/Southeast_Asia_Energy_Outlook_2019.pdf
[49] IRAS (2022). Angel Investors Tax Deduction Scheme (AITD). Inland Revenue Authority of Singapore. https:// www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/angel-investors-tax-deduction-scheme-(aitd)
[50] Kaplan, S. N., and Stromberg, P. (2003). Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts. The Review of Economic Studies, 70(2), 281-315. https://doi.org/ 10.1111/1467-937X.00245
[51] Keuschnigg, C., and Nielsen, S. B. (2003). Tax policy, venture capital, and entrepreneurship. Journal of Public Economics, 87(1), 175-203. https://doi.org/10.1016/S0047-2727(01)00170-0
[52] Klingler-Vidra, R. (2014). Building a Venture Capital Market in Vietnam: Diffusion of a Neoliberal Market Strategy to a Socialist State. Asian Studies Review, 38(4). https://doi.org/10.1080/10357823.2014.958054
[53] Lefebvre, V., Certhoux, G., and Radu-Lefebvre, M. (2022). Sustaining trust to cross the Valley of Death: A retrospective study of business angels’ investment and reinvestment decisions. Technovation, 109. https://doi.org/10.1016/j.technovation.2020.102159
[54] Liu, Z., Shang, J., Wu, S., and Chen, P. (2020). Social collateral, soft information and online peer-to-peer lending: A theoretical model. European Journal of Operational Research, 281(2), 428-438. https://doi.org/10.1016/j.ejor.2019.08.038
[55] Manigart, S., and Sapienza, H. (2017). Venture Capital and Growth. The Blackwell Handbook of Entrepreneurship, Chapter 12. https://doi.org/10.1002/9781405164214.ch12
[56] MASTIC (2022). Angel Tax Incentives. Malaysian Science and Technology Information Centre https://mastic.mosti.gov.my/sti/incentives/angel-tax-incentives
[57] Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 574-592. https://doi.org/ 10.1111/j.1540-6261.1984.tb03646.x
[58] Nassr, I. K., and Wehinger, G. (2016). Opportunities and limitations of public equity markets for SMEs. OECD Journal: Financial Market Trends, 2015(1). https://doi.org/10.1787/19952872
[59] OECD (2022). Economic Outlook for Southeast Asia, China and India 2022: Financing Sustainable Recovery from COVID-19. OECD Publishing, Paris. https://doi.org/10.1787/e712f278-en
[60] Ojo, S., and Elgadi, E. (2020). Crowdfunding of SMEs. Entrepreneurship Marketing (2nd Edition), Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9780429505461-16/crowdfunding-smes-sanya-ojo-entissar-elgadi
[61] Pastor, L., and Stambaugh, R. F. (2003). Liquidity Risk and Expected Stock Returns. Journal of Political Economy, 111(3). The University of Chicago Press. https://www.journals.uchicago.edu/doi/abs/10.1086/ 374184?journalCode=jpe
[62] Paul, S., Whittam, G., and Wyper, J. (2007). The pecking order hypothesis: does it apply to start-up firms? Journal of Small Business and Enterprise Development, 14(1). https://www.emerald.com/insight/content/ doi/10.1108/14626000710727854/full/html
[63] Pierrakis, Y., and Saridakis, G. (2017). Do publicly backed venture capital investments promote innovation? Differences between privately and publicly backed funds in the UK venture capital market. Journal of Business Venturing Insights, 7, 55-64. https://doi.org/10.1016/j.jbvi.2017.02.002
[64] Pradhan, R. P., Arvin, M. B., Nair, M., Bennett, S. E., Bahmani, S., and Hall, J. H. (2018). Endogenous dynamics between innovation, financial markets, venture capital and economic growth: Evidence from Europe. Journal of Multinational Financial Management, 45, 15-34. https://doi.org/10.1016/j. mulfin.2018.01.002
[65] Rampini, A. A., and Viswanathan, S. (2013). Collateral and capital structure. Journal of Financial Economics, 109(2), 466-492. https://doi.org/10.1016/j.jfineco.2013.03.002
[66] Rau, R. (2017). Law, trust, and the development of crowdfunding. Federal Reserve Bank of Philadelphia. https://www.philadelphiafed.org/-/media/frbp/assets/events/2017/consumer-finance/fintech-2017/day-2/law-trust-development-of-crowdfunding.pdf
[67] Roma, P., Vasi, M., and Kolympiris, C. (2021). On the signaling effect of reward-based crowdfunding: (When) do later stage venture capitalists rely more on the crowd than their peers? Research Policy, 50(6). https://doi.org/10.1016/j.respol.2021.104267
[68] Rossi, M., Chouaibi, J., Graziano, D., and Festa, G. (2022). Corporate venture capitalists as entrepreneurial knowledge accelerators in global innovation ecosystems. Journal of Business Research, 142, 512-523. https://doi.org/10.1016/j.jbusres.2022.01.003
[69] Santoso, W., Trinugroho, I., and Risfandy, T. (2020). What Determine Loan Rate and Default Status in Financial Technology Online Direct Lending? Evidence from Indonesia. Emerging Markets Finance and Trade, 56(2). https://doi.org/10.1080/1540496X.2019.1605595
[70] Schmidt, J. (2020). Crowdfunding Statistics Worldwide: Market Development, Country Volumes, and Industry Trends. P2PMarketData. https://p2pmarketdata.com/blog/crowdfunding-statistics-worldwide/. Accessed on 30th of August, 2022.
[71] Securities Commission Malaysia (2014). SC invites comments on proposed regulatory framework for equity crowdfunding. Press release, 21st of August, 2014. Securities Commission Malaysia. https://www.sc.com.my/ resources/media/media-release/sc-invites-comments-on-proposed-regulatory-framework-for-equity-crowdfunding
[72] Securities Commission Malaysia (2016). SC introduces regulatory framework to facilitate peer-to-peer financing. Press release, 13 April 2016. Securities Commission Malaysia. https://www.sc.com.my/resources/ media/media-release/sc-introduces-regulatory-framework-to-facilitate-peer-to-peer-financing
[73] Securities and Exchange Commission of Thailand (2019). SEC issues debt crowdfunding regulations. News release, 22nd of May, 2019. Securities and Exchange Commission of Thailand. https://www.sec.or.th/EN/ Pages/News_Detail.aspx?SECID=7457
[74] Stander, P. (2017). Public policies to promote venture capital: how to get national and EU measures in sync. Policy Paper, No. 203. Jacques Delors Institut, Berlin. https://institutdelors.eu/wp-content/uploads/2018/01/ publicpoliciestopromoteventurecapital-stnder-august17.pdf
[75] Stock Exchange of Thailand (undated), About MAI: Mission & Vision. Stock Exchange of Thailand. https://classic.set.or.th/mai/en/about/vision.html
[76] Susan, M. (2020). Financial Literacy and Growth of Micro, Small, and Medium Enterprises in West Java, Indonesia, Barnett, W.A. and Sergi, B.S. (Ed.) Advanced Issues in the Economics of Emerging Markets (International Symposia in Economic Theory and Econometrics, Vol. 27), Emerald Publishing Limited, Bingley, pp. 39-48. https://doi.org/10.1108/S1571-038620200000027004
[77] Tan, S. L., Tok, Y. W., and Thitipat, C. (2021). Financing Singapore’s SMEs and the crowdfunding industry in Singapore. The Singapore economy: Dynamism and inclusion. Research Collection School of Economics, Singapore. https://ink.library.smu.edu.sg/soe_research/2511
[78] Triantis, G. G. (2000). Financial Slack Policy and the Laws of Secured Transactions. The Journal of Legal Studies, 29(1), 35-69. https://doi.org/10.1086/468063
[79] Van Rijnsoever, F. J. (2020). Meeting, mating, and intermediating: How incubators can overcome weak network problems in entrepreneurial ecosystems. Research Policy, 49(1). https://doi.org/10.1016/j. respol.2019.103884
[80] Van Rooij, M., Lusardi, A., and Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449-472. https://doi.org/10.1016/j.jfineco.2011.03.006
[81] Venancio, A., and Jorge, J. (2021). The role of accelerator programmes on the capital structure of start-ups. Small Business Economics, 59, 1143–1167. https://doi.org/10.1007/s11187-021-00572-8
[82] Wagner, M. (2018). Revenue-share crowdfunding looks promising for small businesses and investors. Research Briefs. University of Washington Foster School of Business. https://foster.uw.edu/research-brief/revenue-share-crowdfunding-looks-promising-small-businesses-investors/
[83] Winton, A., and Yerramilli, V. (2008). Entrepreneurial finance: Banks versus venture capital. Journal of Financial Economics, 88(1), 51-79. https://doi.org/10.1016/j.jfineco.2007.05.004
[84] World Bank and CCAF (2019). Regulating Alternative Finance: Results from a Global Regulator Survey. World Bank and the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School. https://openknowledge.worldbank.org/bitstream/handle/10986/32592/142764.pdf?sequence=1
[85] World Bank (2022). Malaysia: Assessment of the Start-Up Financing Ecosystem. World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/37136/P17485303a40a50a308bd60c618d61ee0c4.pdf?sequence=1
[86] World Bank (undated a). World Development Indicators (WDI) database. World Bank, Washington, DC. https://databank.worldbank.org/source/world-development-indicators. Accessed 29 August 2022.
[87] World Bank (undated b). Doing Business. World Bank, Washington, DC. https://databank.worldbank.org/ source/doing-business. Accessed 29 August 2022.
[88] Yasar, B. (2021). The new investment landscape: Equity crowdfunding. Central Bank Review, 21(1), 1-16. https://doi.org/10.1016/j.cbrev.2021.01.001
[89] Zhao, L., and Shneor, R. (2020). Donation Crowdfunding: Principles and Donor Behavior. Advances in Crowdfunding, 145-160. https://doi.org/10.1007/978-3-030-46309-0_7
[90] Zhou, L. J., Zhang, X., and Sha, Y. (2021). The role of angel investment for technology-based SMEs: Evidence from China. Pacific-Basin Finance Journal, 67. https://doi.org/10.1016/j.pacfin.2021.101540
[91] Ziegler, T. et al. (2018). The 3rd Asia Pacific Region Alternative Finance Industry Report. Cambridge Centre for Alternative Finance. https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-04-3rd-asia-pacific-alternative-finance-industry-report.pdf