SMEs can look to innovative financing models for support

Banks in Hong Kong will support small and medium-sized enterprises (SMEs) through innovative financing models — accounts receivable financing and supply-chain financing — which may break new ground for the Guangdong-Hong Kong-Macao Bay Area, according to a DBS banker.

Hong Kong is favored by diversified corporates in the bay area for its convenience in asset fi nancing. Large and mid-cap corporates also prefer to set up trading centers in the city as the stepping stone to international development, says Ginger Cheng, who heads DBS’ institutional banking group for large and mid-cap corporates.

However, for most SMEs, asset fi nancing seems a large problem, but is in demand. The lack of background information and poor credit rating makes it hard for them to win the trust from banks, she said.

She proposed that accounts receivable financing and supply chain financing models be used to solve the problem. DBS will approach suppliers of major clients and target them as potential SME clients. SME clients can use their outstanding invoices or money owed by large corporates as collateral to get accounts. After that, the bank will keep supporting clients of SMEs in other financing deals.

“These financing models combine the business for large corporates and that for SMEs, and help build a database of all related trustworthy SMEs,” said Cheng. “At the same time, these corporates shall be located close to each other for geographical convenience. If they are all in the bay area, it will become a good model and lead the trend.”

However, all these fi nancial service models and products need e-platforms to support them, especially in the bay area, a place in a strong fi nancial technology atmosphere.

“In terms of financing services, now the policy in Hong Kong is not very encouraging for innovation,” Cheng said. She thought the SAR has to catch up a little bit in the fintech field. On the other hand, she expected Hong Kong to take up this opportunity because the city has the advantage in policy flexibility.

As policies on the mainland and in Hong Kong are a little different, Cheng mentioned three important aspects for the bay area — the fl ow of capital, flow of talents and the flow of goods.

“I believe the policy for capital will be relaxed in the bay area, but it will take time. Also, it will be easier for talents from different places to work in each other’s city. In terms of goods, having a number of harbors and airports represents the strength of the bay area,” she said.

She expects “all flowers to bloom together” in the bay area as every city plays its own role well.