While most countries celebrate small and medium enterprises (SMEs) as the “backbone” of their domestic economies, there is surprisingly little consensus about what defines an SME, what conditions are critical to the success of SMEs and what sort of government policies are most helpful to support SMEs.

This post does not have sufficient room to cover all these issues either, but will highlight the divergence of definitions over what constitutes an SME in just a handful of countries within ASEAN and note one important challenge that SMEs in Southeast Asia face in making the leap from small to even medium size: a lack of access to financing.

It turns out that even within just five ASEAN countries (Indonesia, Malaysia, Philippines, Singapore and Thailand) the definition of an SME varies quite significantly.[1]

Indonesia counts turnover and net assets. Malaysia and Philippines count turnover and employee numbers. Singapore does as well, but does not have different categories to break out micro, small and medium enterprises—any entity with less an USD$74 million in turnover and under 200 employees is an SME (medium, small or micro). Thailand counts fixed assets and employee numbers and lumps together small and micro enterprises.

To get a sense of the variation across the five countries, consider just the category for small enterprises (all figures in USD): Indonesia has turnover from $20,000-200,000 and net assets from $4,000-40,000. Malaysia counts turnover from $80,000-800,000 and 5-30 employees.[2] Philippines says “small” is turnover of $68,000-340,000 with 10-99 employees. Thailand expects fixed assets of less than $900,000 with less than 15 employees.

By definition, anything smaller than this is a “micro” enterprise. Most of these firms have been ignored or overlooked.

My APEC readers will quickly point out that during Philippines host year in 2015, the definition of SME was altered to be MSMEs. This actually makes a great deal of sense given that the proportion of enterprises in the five countries are nearly all micro enterprises. (Note that the data is slightly skewed by Singapore’s classification of all SMEs into one category.) Nearly 99% of Indonesian firms are micro enterprises, 77% of Malaysian companies, nearly 90% in Philippines, and probably most of the 99.5% of Thailand’s firms that are grouped together under micro/small.

Governments, of course, care a great deal about MSMEs, because while they do not all contribute as much to overall GDP relative to their overwhelming numbers, they do contribute significantly to employment.

MSME contribution to GDP in 2013 included Indonesia with 59% of USD$868 billion (2012 figures); Malaysia with 33% of $313 billion; Philippines with 34% of $272 billion; Singapore with 47% of $298 billion; and Thailand with 37% of $387 billion.

The employment contribution of smaller firms is substantial. Nearly every Indonesian (97%) works in an MSME. More than half of all Malaysians (58%) work in MSMEs, as well as 63% in the Philippines, 70% of Singaporeans, and 81% of Thais.

Hence the urgency in figuring out what government needs to do to get greater productivity out of the MSME sector and how the smallest firms can be encouraged to grow larger. There are, of course, many obstacles to growth for small firms.

But one significant roadblock to growth is a lack of credit or financing, particularly for the very smallest firms. SME loans and financing options are increasing, but remain extremely low relative to the importance of these companies to the overall economy.

What is so striking about the Deloitte study is the shockingly high levels of personal financing used by small firms. In other words, most of the small firms in ASEAN are making do with money they have saved themselves or have borrowed from other family members.

For example, in Thailand, 90% of SMEs said they relied on their own savings. In Indonesia, 86% of SMEs reported relying on internal funds for financing needs. Nearly half (48%) of Malaysian firms reported using their own funds for financing.

It is true that providing bank funding, for example, to small firms and especially to micro companies, is difficult and expensive. The complexity of processes for qualification can be too daunting for many small firms. Credit rating agencies do not exist. Most banks do not assess loans against business plans but against tangible assets. Micro businesses, particularly, rarely have substantial assets or usable collateral. The bank loans that do exist for these firms often do not get extended until small firms have been around for years.

All this leaves MSMEs badly served or underserved and unable to grow.

Payments are a particular problem for smaller firms. The Asian Trade Centre is working on one aspect of this issue, connected to companies trying to operate on e-commerce platforms. At the moment, smaller firms trying to manage cross-border payments, especially on mobile devices, struggle to complete transactions with interested buyers of their goods and services in a cost-effective way across the region.

To give a concrete example of the problems companies face, consider our issues related to payment. We had a large multinational last year that wanted to provide a payment via a credit card on our website. Our website is hosted out of the US via Squarespace. It uses a proprietary payments system called Square, which was not authorized for use in Singapore.

We asked Squarespace for help. They suggested using Paypal. With all due respect for our colleagues at Paypal, the large MNC said no. Plus Paypal has a fairly large transaction fee (for a small firm).

Squarespace suggested we turn on the shopping cart function on our webpage with our local Singaporean bank. We called our bank. They said they would do so for SGD$4200 in the first year and keep it active for $2200 a year after that.

In the end, the company gave us cash.

Think about the inefficiencies in this system. This is why we are pushing so hard to get governments in the region to sort out payments for smaller firms—without this critical leg of the problem addressed, e-commerce benefits will never flow to the companies that represent the largest segments of commerce in the region.

Of course, if you would like to give us cash or sort out our SME banking, payments or loan problems, do let us know!

[1] Data for this post is drawn from an interesting 2015 Deloitte study on Digital SME Banking commissioned by Visa. Deloitte’s data was largely drawn from existing surveys or government statistics departments.

[2]But apparently not in the manufacturing sector. The Deloitte study draws from the Malaysia Department of Statistics. (Perhaps readers could explain what is different about the manufacturing sector?)