MSMEs Access to Finance - June 2021
June 2021
The National Reserve Bank of Tonga continues to work towards achieving its objective of supporting macroeconomic stability and economic growth This is through strengthening and developing the Micro, Small and Medium Enterprises (MSMEs) sector and MSMEs finance in Tonga. MSMEs sector contributes to the engines of innovation, growth and employment. MSMEs can only reach its full potential if they operate in an environment where they are able to access to finance.
MSMEs Outstanding Loans Decline
Over the year ended June 2021, the MSMEs outstanding loans fell by $4.1 million (16.0%) to T$21.3 million compared to the year ended June 2020. This was mainly due to the decline in outstanding loans to agriculture, wholesale retail and manufacturing sector (refer Table 1). According to banks, the decline in the MSMEs outstanding loans was due to loan settlement by some of the MSMEs. Due to the closing down of international borders and the travel restriction, their families abroad tend to send money to their family in Tonga to assist with their business as they are unable to travel to Tonga. Furthermore, the local people also started spending on local activities (resorts, whale watching, hotels special package for the locals), which supports the MSMEs sector. The decline was mainly driven by the decline in MSME loans at banks. Tongatapu 2 constituent was the main contributor to the decline in the total MSMEs outstanding loan balance mainly for wholesale retail and manufacturing loan sector. This was followed by Tongatapu 1 mainly on agriculture sector (refer Annex 1).
Table 1: Banks & Non-Banks MSMEs Sector Growth over the year
| Type of Sectors | Jun 21 | Jun 20 | Change over the year | |||||
| No. of MSMEs |
MSMEs Outstanding Balance (T$m) |
No. of MSMEs |
MSMEs Outstanding Balance (T$m) |
No. of MSMEs | MSMEs Outstanding Balance | |||
| Change | % Change |
Change T($m) |
% Change |
|||||
| Overall Total | 2,102.0 | 21.3 | 2,466.0 | 25.4 | -364.0 | -14.8 | (4.0) | -15.9 |
| Agriculture | 1,050.0 | 6.5 | 1,137.0 | 8.4 | -87.0 | -7.7 | -1.9 | -22.8 |
| Construction | 5.0 | 0.5 | 17.0 | 0.6 | -12.0 | -70.6 | -0.1 | -24.4 |
| Fisheries | 94.0 | 2.1 | 121.0 | 1.8 | -27.0 | -22.3 | 0.3 | 15.1 |
| Forestry | 1.0 | 0.02 | 4.0 | 0.0 | -3.0 | -75.0 | 0.0 | -3.9 |
| Manufacturing | 733.0 | 5.8 | 881.0 | 6.7 | -148.0 | -16.8 | -1.0 | -14.3 |
| Other Services | 94.0 | 2.0 | 65.0 | 1.5 | 29.0 | 44.6 | 0.5 | 37.5 |
| Tourism | 20.0 | 1.8 | 26.0 | 1.7 | -6.0 | -23.1 | 0.1 | 7.6 |
| Transport | 20.0 | 0.8 | 37.0 | 0.9 | -17.0 | -45.9 | 0.0 | -4.5 |
| Wholesale/Retail | 85.0 | 1.8 | 178.0 | 3.7 | -93.0 | -52.2 | -1.9 | -51.3 |
| Source: Banks & Non-Banks | ||||||||
Number of MSME Loans Decrease
Simultaneously, the number of MSMEs with loans also decreased by 364 (15%) to 2,102 MSMEs owing to the lower number of MSMEs for the manufacturing, wholesale retail and agriculture sector. The decline in the number of MSMEs for manufacturing and agriculture sector was led by Banks whereas the decline in the number of MSMEs for wholesale retail sector was led by Non-Banks. The decline in the number of MSMEs is consistent with the decrease in the MSMEs total outstanding loans. Vava’u 16 and ’Eua 11 constituencies were the major contributors to the decrease in the number of MSMEs loans for agriculture sector. Tongatapu 2 constituency was the main contributor to the decline in the number of MSMEs for manufacturing sector. Tongatapu 1 contributed the most to the decline in the number of MSMEs for wholesale retail sector (Annex 2).
Majority of MSMEs ownership proportionate
The majority of the MSMEs ownership was proportionate between male and female population. About 52% of the total number of MSMEs is female owned and 48% is male owned (refer to Table 2). The number of male owned MSMEs was mainly in the agriculture sector which is the main bulk of the total number of MSMEs. This is due to landownership advantage of males, which is the key collateral for agriculture loans. Furthermore, the number of male owned MSMEs also drove the fisheries, transportation, tourism and construction sector. The type of expertise required in these sectors is typically male-oriented for activities/areas like fishing, construction, etc.
On the other hand, the female-owned MSMEs drove the manufacturing sector. This included weaving mats/ta’ovala, tapa making and handicrafts activities etc. Looking at the overall banking system’s total loan portfolio, MSME loans make up about 4% of the total loans.
Table 2: Banks & Non-Banks Total Number of MSMEs by Gender
| Type of Sectors | Jun 21 | Jun 20 | ||||||
| Number of MSMEs | Number of MSMEs | |||||||
| Male | Female | Male/Female | Total | Male | Female | Male/Female | Total | |
| Overall Total | 1,006 | 1,090 | 6 | 2,102 | 1,291 | 1,174 | 2 | 2,467 |
| Agriculture | 726 | 324 | - | 1,050 | 874 | 263 | - | 1,137 |
| Construction | 5 | - | - | 5 | 11 | 6 | - | 17 |
| Fisheries | 62 | 32 | - | 94 | 81 | 40 | - | 121 |
| Forestry | 1 | 0 | 0 | 1 | 4 | - | - | 4 |
| Manufacturing | 117 | 616 | - | 733 | 158 | 723 | - | 881 |
| Other services | 26 | 64 | 4 | 94 | 44 | 21 | - | 65 |
| Tourism | 14 | 4 | 2 | 20 | 19 | 5 | 2 | 26 |
| Transport | 14 | 6 | - | 20 | 24 | 14 | - | 38 |
| Wholesale/Retail | 41 | 44 | - | 85 | 76 | 102 | - | 178 |
Barriers faced by Banks and MSMEs sector to be addressed to increase access to finance
Table 3 below summarises some of the challenges related to access to finance from the supply side which needs to be addressed to assist the MSMEs sector to improve access to finance as well as support economic growth. The Reserve Bank is currently working on updating the 2016 draft National Financial Inclusion Strategy (NFIS), which will assist with addressing the barriers identified in Table 3 below.
Table 3: Summary of the barriers faced by the Banks and Responsive Measurement
| Stakeholders | Barriers | Responsive Measurement |
| Banks | 1. No business advisory provided to MSMEs in terms of drawing up financial account, business plan etc. | NRBT to liaise with Ministry of Trade & Economic Development to consider including financial literacy as part of the requirement for business licensing. |
| 2. Banks do not lend to start- up businesses. | i. NRBT to liaise and discuss with government on MSMEs initiatives for start-up businesses. E.g. Establish a Ministry to provide Incubators for MSME mainly for start-up MSMEs. ii. NRBT to discuss with government on how to cater for the start- up businesses as well as those who haven't trade long enough to qualify for a loan. |
|
| 3. MSMEs has no financial account or financial record with the banks | ||
| 4. MSMEs not trading long enough to qualify for loan | ||
| 5. Lack of financial literacy | NRBT to liaise with Ministry of Trade & Economic Development to consider including financial literacy as part of the requirement for business licensing. | |
| 6. No statistics on rejected MSME loans, this is an indicator for improving financial services as well as financial literacy. | NRBT to liaise with banks on collecting data on MSME rejected loans | |
| 7. Delays in payments received from Government for MSMEs services. | NRBT to liaise with Ministry of Finance in terms of the impact on MSMEs Loan when there's a delay in payment received from Government for MSMEs services. | |
| 8. Poor customer service | Encourage MSMEs to lodge a complaint to the NRBT. NRBT to liaise with TDB on improving their customer services. | |
| Ministry of Trade & Economic Development (MTED) |
1. No coordination and cooperation between government ministries related to MSMEs. | NRBT to suggest that MTED & MOF establish a steering committee focusing on improving access to finance for MSMEs in Tonga to coordinate the schemes and report to Cabinet. This will ensure that all relevant stakeholders are going to comply with MSMEs requirements. |
Conclusion
The MSMEs sector has shown a negative outcome, with the number of MSME loans and MSMEs outstanding loans declining over the year to June 2021. MSMEs loans to the agriculture and manufacturing sector contributed to this decline. The decline in the MSMEs loan is consistent with the overall decline in the total loans in the banking system. It may reflect the ability of the MSMEs sector to repay their loan, particularly the agriculture, wholesale retail and manufacturing sector during the COVID-19 pandemic. Moreover, the decline in the number of MSMEs loans may also reflects that the MSME sector is risk-averse and not taking out a loan.
Annex 1: Banks & Non-Banks MSMEs Outstanding Loan Summary by Sector and Constituency over the year
June 21
| Constituency | June 21 | |||||||||
| Sector by Constituency (T$million) |
||||||||||
| Agriculture | Construction | Fishing | Forestry | Manufacturing | Other Services | Tourism | Transportation | Wholesale Retail | Grand Total | |
| Overall | 6.5 | 0.5 | 2.1 | 0.0 | 5.8 | 2.0 | 1.8 | 0.8 | 1.8 | 21.3 |
| Tongatapu 1 | 0.1 | 0.1 | 0.0 | - | 0.3 | 0.5 | - | 0.0 | 0.4 | 1.4 |
| Tongatapu 2 | 0.3 | 0.1 | 0.4 | - | 0.4 | 0.4 | 0.1 | 0.0 | 0.5 | 2.2 |
| Tongatapu 3 | 0.2 | 0.1 | 0.2 | - | 0.4 | 0.02 | - | 0.3 | 0.0 | 1.2 |
| Tongatapu 4 | 0.1 | - | 0.8 | - | 0.6 | 0.2 | 0.6 | 0.1 | 0.1 | 2.5 |
| Tongatapu 5 | 0.5 | 0.1 | 0.02 | - | 0.5 | 0.1 | 0.2 | - | 0.0 | 1.4 |
| Tongatapu 6 | 0.5 | - | 0.012 | - | 0.5 | 0.1 | - | 0.0 | 0.1 | 1.2 |
| Tongatapu 7 | 0.3 | - | 0.03 | - | 0.3 | 0.3 | 0.1 | 0.0 | 0.2 | 1.2 |
| Tongatapu 8 | 0.4 | - | 0.06 | - | 0.3 | 0.1 | - | 0.0 | 0.0 | 0.9 |
| Tongatapu 9 | 0.4 | - | 0.02 | 0.02 | 0.4 | 0.0 | 0.2 | 0.2 | - | 1.3 |
| Tongatapu 10 | 0.9 | - | 0.1 | - | 0.3 | 0.1 | - | 0.1 | 0.23 | 1.7 |
| 'Eua 11 | 0.4 | - | 0.0 | - | 0.3 | - | - | - | 0.08 | 0.8 |
| Ha'apai 12 | 0.2 | - | 0.0 | - | 0.4 | 0.03 | 0.01 | - | 0.02 | 0.6 |
| Ha'apai 13 | 0.3 | - | 0.0 | - | 0.5 | - | - | - | 0.00 | 0.8 |
| Vava'u 14 | 0.7 | - | 0.0 | - | 0.2 | 0.0 | 0.3 | - | - | 1.3 |
| Vava'u 15 | 0.6 | 0.1 | 0.3 | - | 0.2 | 0.3 | 0.3 | 0.1 | 0.1 | 2.0 |
| Vava'u 16 | 0.60 | - | 0.002 | - | 0.13 | - | 0.02 | - | 0.010 | 0.8 |
| Niuas 17 | 0.02 | - | - | - | 0.05 | - | - | - | - | 0.1 |
Annex 2: Banks & Non-Banks’ Total Number of MSMEs Summary by Sector and Constituency over the year
June 21
| Constituency | June 21 | |||||||||
| Number of MSMEs by Sector | ||||||||||
| Agriculture | Construction | Fishing | Forestry | Manufacturing | Other Services | Tourism | Transportation | Wholesale Retail | Grand Total | |
| Overall Total | 1,050 | 5 | 94 | 1 | 733 | 94 | 20 | 20 | 85 | 2,102 |
| Tongatapu 1 | 19 | 1 | 5 | 0 | 36 | 13 | 0 | 1 | 6 | 81 |
| Tongatapu 2 | 23 | 1 | 7 | 0 | 32 | 12 | 1 | 3 | 16 | 95 |
| Tongatapu 3 | 31 | 1 | 5 | 0 | 16 | 3 | 0 | 3 | 3 | 62 |
| Tongatapu 4 | 15 | 0 | 25 | 0 | 51 | 15 | 6 | 1 | 10 | 123 |
| Tongatapu 5 | 63 | 1 | 5 | 0 | 56 | 6 | 3 | 0 | 4 | 138 |
| Tongatapu 6 | 70 | 0 | 1 | 0 | 54 | 12 | 0 | 1 | 8 | 146 |
| Tongatapu 7 | 37 | 0 | 2 | 0 | 35 | 14 | 2 | 1 | 6 | 97 |
| Tongatapu 8 | 44 | 0 | 7 | 0 | 40 | 2 | 0 | 2 | 5 | 100 |
| Tongatapu 9 | 93 | 0 | 3 | 1 | 54 | 3 | 1 | 3 | 0 | 158 |
| Tongatapu 10 | 91 | 0 | 5 | 0 | 48 | 4 | 0 | 3 | 8 | 159 |
| 'Eua 11 | 106 | 0 | 2 | 0 | 42 | 0 | 0 | 0 | 8 | 158 |
| Ha'apai 12 | 46 | 0 | 7 | 0 | 69 | 3 | 1 | 0 | 4 | 130 |
| Ha'apai 13 | 71 | 0 | 8 | 0 | 66 | 0 | 0 | 0 | 2 | 147 |
| Vava'u 14 | 141 | 0 | 7 | 0 | 53 | 1 | 2 | 0 | 0 | 204 |
| Vava'u 15 | 88 | 1 | 3 | 0 | 42 | 6 | 3 | 2 | 4 | 149 |
| Vava'u 16 | 104 | 0 | 2 | 0 | 20 | 0 | 1 | 0 | 1 | 128 |
| Niuas 17 | 8 | 0 | 0 | 0 | 19 | 0 | 0 | 0 | 0 | 27 |
