MSMEs Access to Finance - June 2020

June 2020


Amongst the National Reserve Bank of Tonga’s monetary policy actions is to focus on exploring measures to encourage the full utilization of the excess liquidity in the banking system for prudent lending activities to support economic growth. This includes undertaking financial inclusion initiatives to support inclusive economic growth. Data on MSMEs (medium small and micro enterprises) from banks and non-banks was collected and is based on their own MSMEs definition which is the value outstanding loans.

There are however some challenges to data collection such as the timeliness of submissions of the data from reporting entities as well as the lack of sex-disaggregated data. The Reserve Bank is working closely with the banks in addressing these challenges by requesting that banks provide the raw data for the Reserve Bank to extract the required data for the Financial Access report. The bank’s individual definition for MSMEs are stated in Table 1 below:

Table 1: Banks' MSMEs Definition

Banks Criteria - Approved Amount

ANZ Below T$500k
BSP Below T$250K
MBf Below T$50k
TDB Below T$50k

Non-Banks Between T$7k - T$26k


One of the objective of the Financial Access Unit is to strengthen and develop the MSMEs sector by increasing MSMEs access to finance by 20% towards the end of 2020. This report will portray the current level of access to finance by the MSMEs sector in Tonga through the financial system (banks & non-banks financial institution). The MSMEs indicators will guide the NRBT on evidence-based policies to enhance access to finance by the MSMEs sector.

MSMEs Outstanding Loans Decline

Over the year ended June 2020, the MSMEs outstanding loans fell by $3.0 million (11%) to T$25.4 million. This was mainly due to a decline in outstanding loans to other services, agriculture and tourism sector (refer Table 2). The decline was predominantly driven by banks and outweighed the rise in the MSMEs outstanding loans by Non-Banks financial institutions. The decline in MSMEs outstanding loans reflected the impact of the COVID19 pandemic and the fall in aggregate demand due to cancelled events. overseas. Tongatapu 2 constituent is the main contributor to the decline in the total MSMEs outstanding loan balance mainly on agriculture loan and other service loan sector whereas Vava’u 15 drove the decline in the total MSMEs outstanding loan balance for manufacturing sector (refer Annex 1). This is linked to the women handicrafts that are usually sold to tourists but given the impact of COVID-19, it has eliminated the market for women handicrafts.

Table 2: Banks & Non-Banks MSMEs Sector Growth over the year

Type of Sectors Jun 20    Jun 19    Change over the year
No. of MSMEs MSMEs Outstanding Balance

No. of
MSMEs Outstanding Balance
No. of
MSMEs Outstanding Balance
Change % Change Change
% Change

Overall Total 2,467.0 25.4 2126.0 28.4 341.0 16.0% (3.0) -10.6%
Agriculture 1,137.0 8.4 1,082.0 10.3 55.0 5.1% -1.8 -17.6%
Construction 17.0 0.6 16.0 1.2 1.0 6.3% -0.6 -52.2%
Fisheries 121.0 1.8 108.0 2.2 13.0 12.0% -0.3 -16.1%
Forestry 4.0 0.02 2.0 0.01 2.0 100.0% 0.01 102.7%
Manufacturing 881.0 6.7 682.0 5.4 199.0 29.2% 1.3 25.1%
Other services 65.0 1.5 66.0 4.1 -1.0 -1.5% -2.6 -63.2%
Tourism 26.0 1.7 36.0 2.6 -10.0 -27.8% -0.9 -34.0%
Transport 38.0 0.9 29.0 0.6 9.0 31.0% 0.3 59.2%
Wholesale/Retail 178.0 3.7 105.0 2.2 73.0 69.5% 1.5 69.4%

Source: Banks & Non-Banks

Number of MSME Loans Increase

On the other hand, the number of MSMEs that has a loan rose by 341 (16%) to 2,467 MSMEs owing to a significant increase in number of MSMEs for manufacturing, wholesale retail and agriculture sector. Majority of the MSMEs are owned by male compared to female owned MSMEs. This is mainly because around 60% of the total number of MSMEs is from the agriculture sector. In addition, the collateral for the MSMEs loan particularly for agriculture are mainly land which are male owned. The rise in the number of manufacturing sector is driven by female owned MSMEs particularly weaving mats and handicrafts and they are the main bulk of this sector. The increase in the number of MSMEs for wholesale retail sector was led by Non-Banks particularly loan for retail stores and flea market goods. Tongatapu 10 and ‘Eua 11 constituencies were the major contributor to the increase in the number of MSMEs loan particularly the agriculture sector (Annex 2). The rise in the number of MSMEs was led by Non-Banks Financial Institutions.

Looking at the overall banking system’s total loan portfolio, MSME loans make up about 4% of the total. In terms of the total loan portfolio to the agriculture sector, 84% of the total are loans to MSMEs and 16% are loans to large businesses.

Barriers faced by Banks and MSMEs sector needs to be addressed to enable more access to finance

Despite the growth in the access to finance for MSMEs, there are identified barriers faced by banks and other MSMEs initiatives as well as the MSMEs sector regarding access to finance for MSMEs. 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. However, the Reserve Bank is working together with the banks and relevant counterparties in addressing these barriers as well as supporting their MSMEs initiatives.

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
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.


The number of MSME loans rose whilst the MSMEs outstanding loans declined over the year to June 2020. Agriculture, other services and tourism sector MSMEs contributed to the fall in the outstanding loans. MSME loans are mainly dominated by male owned MSMEs from Tongatapu. Non- Banks Financial Institution’s loans to MSMEs increased and partially offset the decline in MSME loans by banks. This increase is due to the loan relief packages for COVID-19 and TC Harold offered to their members. The rise in the number of MSMEs was led by manufacturing, wholesale and retail, and agriculture sectors which is mainly from Tongatapu and ‘Eua. The impact of COVID19 as well as the Tropical Cyclone Harold contributed to the fall in the level of MSMEs in Tonga. This is mainly related to current restrictions on the pandemic that are affective the tourism and transportation sector and cancellation of major events such as church conferences. This resulted in the decline in aggregate demand as well as less income generating activities for MSMEs sector.

The NRBT believe that access to finance by MSMEs would play an important role in job creation, poverty alleviation, and promotion of exports and investment. This would consequently assist in achieving the vision of the Tonga Strategic Development Framework (TSDF) 2015 – 2025 and priority focus areas such as inclusive and sustainable growth. With more employment opportunities, dependency on external sources of income will be reduced. This is particularly important given the high level of unemployment especially among young people who make up about half of the population. In addition, developing and promoting MSMEs’ access to finance would also support financial stability and the effectiveness of monetary policy transmission, as well as maintain sufficient foreign reserves. However, for MSMEs to develop further, the coordinated efforts of all relevant stakeholders from both the Government and financial service providers, and the private sector, including the MSMEs are prerequisite.

The Reserve Bank will continue to liaise and discuss with the banks, government ministries as well as the private sectors in finding a way to assist MSMEs sector to grow and create an enabling environment to promote MSME access to finance. This includes enhancement in coordination efforts of all relevant stakeholders from both government, financial service providers and private sectors.

Annex 1: Banks & Non-Banks MSMEs Outstanding Loan Summary by Sector and Constituency over the year

Annex 2: Banks & Non-Banks’ Total Number of MSMEs Summary by Sector and Constituency over the year

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