Prof Tan Swee Liang
Feature on Prof Tan Swee Liang, Associate Professor of Economics (Practice)
School of Economics, Singapore Management University
‘Pooling people together’ to help SMEs in challenging times
Even in a global economy small and medium enterprises (SMEs) remain vitally important, but they are vulnerable to big disruptions as well as their own unique challenges. Through her research and as a Council Member of the Economic Society of Singapore, Associate Professor Tan Swee Liang helps find innovative support mechanisms for SMEs.
In Singapore, SMEs make up 99 per cent of companies and employ 71 per cent of the local workforce. They also contribute almost half of the country’s Gross Domestic Product (GDP). Hence, it is important for countries such to Singapore to have sound SME policies to ensure the business ecosystem provides growth opportunities for promising SMEs.
“During economic downturn, SMEs are extremely vulnerable due to their size and lack of market power,” says Tan Swee Liang, Associate Professor of Economics (Practice) at the SMU School of Economics.
One of the challenges SMEs faced is access to funding. SME’s typically have low to no collateral and require smaller fund injections for a shorter time. This conflicts with the banks’ ideal borrowers: those asking for larger amounts for a longer time, backed by solid collateral. “Funding is important in helping SME’s digitalization and regionalization strategies to be more competitive, but equally or more important for many SMEs, that access to funding can help to address SMEs cash flow problems,” says Professor Tan.
Lowering credit barriers for SME through innovation
Her current research looks at how FinTech can help. “Big Data, for example, gives FinTech firms a new way to determine the credit risks of SMEs, thus overcoming one of the big stumbling blocks for traditional lenders.”
In the book chapter Financing Singapore’s SMEs and the Crowdfunding Industry in Singapore, Professor Tan and her co-authors explored how new digital technologies might address barriers that SMEs face in accessing credit.
“Through a survey and interviews with crowdfunders, we learned that their business models are well-suited to solving SMEs’ liquidity problems by providing low quantum, short term loans at competitive rates efficiently,” she explains. Crowdfunders also approve the funds much faster than banks, again thanks to digital technologies and granular customer data. The data used by crowdfunders comes from the ‘daily life’ of SMEs, some of which may fall beneath the notice of banks: utility payments, rent payment history, insurance claims, use of mobile phones, social media, and sales data.
In particular, the paper focuses on how crowdfunding via digital platforms improved SMEs’ timeliness to pay debt in Singapore. An inverse relationship was found between crowdfunding and the “days turned cash” variable – a measure of the timeliness of debt payment by SMEs. “Anecdotal evidence from growing SMEs also suggests that getting crowdfunding loans induces financing from banks, leading to more efficient allocations of credit,” Professor Tan says. To that end, her research on measuring drivers of fintech credit identified key drivers to be availability of venture capital, and financial development depth.
Harnessing the power of an ecosystem
Her research findings have spurred her interest to collaborate with the Association for Small Medium Enterprises ASME and share how alternative financing works to fill the financing gaps, and what are the pitfalls that are platform specific. In her capacity as a Council Member of the Economic Society of Singapore, she collaborates with ASME to have SMEs representatives, solution providers (such as peer-to-peer P2P lending companies, invoice financing companies), government entities (Enterprise Singapore) and academic experts come together to discuss on challenges that SMEs face (access to financing, mergers and acquisitions opportunities, and other issues such as graduates’ perception of employment in SMEs).
“One of my roles is to facilitate conversations and drive collaboration between the SMEs and the players in the FinTech industry.” In her words, she’s “pooling people together” to build a united front to fight against an increasingly challenging economic landscape for SMEs.
Sharing that she finds the work extremely meaningful, Professor Tan says, “As economists, we are always looking at ways to improve the welfare in a society. One way to do so is by achieving inclusive, higher income per capita.”
She elaborates, “In a mature economy, more input will not necessarily produce more output. Instead, we aim for higher productivity and efficiency through the financial-real sector channel.”
The impact of financial development on the standard of living
One of her recent research projects addresses that issue, by analysing the association between the development of bank and capital markets, with the income per capita in three groupings: ASEAN-5 economies (Singapore, Malaysia, Thailand, Philippines, Indonesia), Asia-5 (Japan, China, Hong Kong SAR, South Korea and India) and OECD-7 (Australia, Canada, Denmark, Norway, Sweden, UK and US).
In the research paper “What, why and how financial development matters: Evidence of ASEAN-5, Asia-5 and OECD-7 economies”, she used panel data analysis to highlight the role of banks in Asia-5 and OECD-7. In turn, the paper looks at what ASEAN-5 can learn from those economies to help raise the standard of living throughout the region.
Professor Tan says of the OECD-7 results, it’s not the size of the banks that matter – rather, it’s bank efficiency that drives income per capita. “This emphasises the need for banks to shift from simply mobilising savings, toward improving efficiency of investment, which will then contribute to higher economy-wide standard of living.”
“We found that banks remained important for Asia-5 and OECD-7 despite ongoing threats that FinTech posed to their banking services,” she adds.
On the effects fintech disruption, in the book chapter Financing Singapore’s SMEs and the Crowdfunding Industry in Singapore, she and two co-authors categorised four scenarios of a “good” or “bad” outcomes from the perspective of the incumbent banks, and proposed a combination of the better bank-cum-distributed bank outcome in Singapore. Regulatory changes such as the issuance of new digital bank licenses could shape the future fintech landscape. Regulators must strike the right balance between developing the fintech industry while safeguarding financial stability.
Keeping ourselves ahead
Emphasising the importance of innovating to raise productivity and efficiency levels, Professor Tan explains that developing economies tend to record higher economic growth rates of about eight to ten per cent. “But as they mature, their growth rate naturally slows to about two to three per cent – even then, this is not to be taken for granted.”
For maturing economies such as Singapore, the efficiency factor becomes a critical source of growth; hence policies to facilitate efficient funding of scarce capital by encouraging traditional and innovative lenders to co-evolve (as opposed to zero-sum competition) is, in her opinion, critical for Singapore to achieve a two to three per cent inclusive and dynamic growth over the next decade.
Professor Tan is optimistic due to the power of collaborative innovation – if organizations and sectors pool their strengths, they can turn challenges into opportunities for SMEs, incumbent lenders and fintech platforms.