The funding environment of small- and medium-sized enterprises (SMEs) is becoming critical, as the supply-demand gap in SME finance continues to widen in Asia and the rest of the world. Global economic uncertainty and financial regulatory tightening, denoted by Basel III, are accelerating this trend.

Lessons learned from the global financial crisis suggest that the limitations of traditional bank lending to SMEs have prompted many countries to consider diversified financing modalities that allow them to raise stable and safe funds for small businesses.

ADB surveys indicate that SMEs are seeking to access formal and diversified funding instruments with long-term tenure to reduce informal finance and self-funding dependency. Equity finance is one of the options SMEs are considering to escape the poor funding environment and grow further with their increased social credibility. However, most SMEs cannot tap the regular exchange market due to the relatively strict listing requirements, and more importantly, SMEs lack of basic knowledge of capital market financing.