New non-banking players are increasingly becoming a source of credit for SMEs, and while this is a positive development, there is a need to review existing regulations, reports JOY LEE.

With the emergence of alternative financing for small and medium enterprises (SMEs), there is a need for regulators to review regulatory frameworks to enable small businesses to benefit from these new financing models, say panelists at a recent SME Finance Forum on Innovative Financing for SMEs.

The growth of SMEs has generally been limited by access to finance as banking institutions are largely hesitant to extend credit to the sector.

But a growing range of alternative financing such as e-money services and crowdfunding models has provided SMEs with other channels of funding.

“This basically means you can democratise the gathering of funds from retail investors. And in this new environment, there are new firms that are entering the unregulated or lightly regulated financial system,” says Giuseppe Gramigna, chief economist of the US Small Business Administration, at the forum organised by APEC Business Advisory Council.

Gramigna stresses that regulators need to understand the roles of these new players, their objectives and the dynamics of this new financing environment in order to address regulatory issues regarding alternative financing.