ASSISTANCE SCHEMES FOR LOCAL ENTERPRISES (Reduction of grants)

Dr Lily Neo asked the Minister for Trade and Industry what are the reasons for reducing the various grants such as Local Enterprise Technical Assistance Scheme (LETAS), Local Enterprise Finance Scheme (LEFS) and Micro Loan Programme (MLP) when the need for such schemes is even more pressing in view of our present economic climate.

Mr Raymond Lim Siang Keat (for the Minister for Trade and Industry): Sir, SPRING Singapore reviews and calibrates its various SME assistance schemes from time to time to ensure optimal use and effectiveness. The Government's co-funding share for LETAS was raised from 50% to 70% for first-time applicants in October 1999, and for the National Cost of Quality and Financial Advisor programmes in November 2001. The intent was to promote awareness of SMEs on LETAS and these two programmes. As the objective has since been met - for instance, the number of first-time applicants for LETAS doubled from 1,500 in FY 1999 to 3,000 in FY 2002 - the co-funding share for these categories has reverted to the normal 50% in July 2003. This will allow the pool of LETAS funds to support more SME upgrading and new programmes.

Other than these modifications to LETAS, there are no changes to either the Local Enterprise Finance Scheme (LEFS) or the Micro Loan Programme. In fact, during this economic slowdown, LEFS has been enhanced twice, in November 2001 and June 2003, and both in terms of moving it up so that more medium enterprises, and down to the smaller companies, would qualify for LEFS. I wish to assure Dr Neo that the Government is aware of the importance of helping SMEs in these challenging times. We are in fact looking into expanding the Loan Insurance Scheme (LIS) and the Bridging Loan Programme to benefit more SMEs. Details will be announced when ready.

Dr Lily Neo (Jalan Besar): May I ask the Minister of State whether reducing the quantum for LETAS in fact runs counter to the bigger picture of the need to revive our economy and to increase entrepreneurship? Should there not be priority given to assist local businesses, with concerted efforts by various Ministries, rather than cutting back?

Mr Raymond Lim Siang Keat: LETAS was, right from the start, a co-funding scheme, and it was 50% by the Government and 50% by the company itself. This is to ensure commitment. As I have explained, the reason why we went up to 70% was for a particular period of time, which is promotional. The issue here is really to get SMEs to upgrade their capabilities.

The other issue that the hon. Member brought up is really a matter of how best to help SMEs when it comes to cash-flow financing. That is the difficulty we have in an economic downturn - not just a question of upgrading capabilities, but how do we help them so that a liquidity problem does not turn into an insolvency problem. And here there is actually a whole range of schemes that has been launched by the Government and which is still in existence. As I said, LEFS is one scheme where you can actually tap on it for working capital. The Micro Loan Scheme actually helps very small companies to tide over difficult periods where they are tight in their cash flow.

The Bridging Loan Programme, which was introduced during the SARS outbreak and which is still in operation, seeks again to help companies who are particularly badly affected during the SARS outbreak in terms of their cashflow requirements. So there is a whole range of schemes.

Dr Lily Neo: May I ask the Minister of State whether his Ministry has been stringent in approving applications under the various schemes, such as LETAS, LEFS and MLP? What are the approval rates for such schemes? Is there too much red tape associated with these schemes? Am I correct to say that LETAS application is cumbersome, requiring a lot of information and difficult ones, such as the impact of the project on the company's future operations and business?

Mr Raymond Lim Siang Keat: Actually that is not a difficult question. If I were to give you money, I would like to know what are your company's plans.

Is the Government too stringent in approving applications under LEFS, LETAS and MLP? I think our philosophy must be that at the end of the day to use market mechanism to decide, because funds are finite and we will have to find a way to allocate the funds to those who are most deserving of help. The way we have gone around is basically to use financial players who are already in the industry, rather than for the Government to substitute itself for the financial players. So, in the case of LEFS, for instance, we have 17 participating financial institutions.

How does the Government help? The Government helps by providing the credit line. The problem for SMEs is the perception by industry players that the risks are higher. By providing the credit line, the Government is actually lowering the risks for the financial player that is actually awarding a particular loan. So, the Government takes 80% of the risks and the financial industry player takes 20%.

The other issue here is in terms of expertise. Does the particular financial institution understand the SME business well enough in order to assess it and give out the loan? Increasingly, the market will have players that specialise in SMEs financing. For instance, recently, OCBC Bank has announced that it is going into partnership with Hong Kong SME Loan, which specialises in cash-flow lending, which is important for SMEs. Hong Leong Finance is also positioning itself as a SME bank to help them. So, that must be the approach. The Government should not substitute itself for existing financial players, because that would be crowding them out.

Mr Tan Soo Khoon (East Coast): Sir, I think the Minister of State missed the point that Dr Neo was trying to get at. Is it not possible to simplify the procedures when applying for such grants? One of the most common complaints among the SMEs when applying for the grants under the schemes is the number of forms and questions that they have to answer, bearing in mind that many of these companies do not have professional backup.

The second question I would like to pose is that in submitting their business plans, many of these SMEs have to engage consultants. I understand that previously the consultancy fees were heavily subsidised. Am I right to say that the consultancy fees are no longer subsidised, or has the subsidy been significantly reduced and, if so, why?

Mr Raymond Lim Siang Keat: The short answer to the question whether or not there is too much administrative hassle in applying for a loan is that if that is the case, give me the details and we will look into them. Our aim is to facilitate. The fact of the matter is that there have been a lot of loans that have been approved. But if, at the margin, there are excessive rules that you think we can cut down, the answer is yes, we will look into them.

On the point of the consultancy fees, there is still subsidy for the consultancy fees. As to the actual quantum, I do not have the details here, but I could give them to the hon. Member separately.

Dr Lily Neo: May I ask the Minister of State whether these various schemes are well publicised and targeted at those who may benefit most, and whether he would consider promoting these schemes further to increase their take-up rate so that we can help more SMEs?

Mr Raymond Lim Siang Keat: The schemes are actually pretty well publicised. All the chambers of commerce, for instance, are fully aware of these schemes; business associations, whether it be the Association of Small and Medium Enterprises, the chambers of commerce - we actually have satellite centres in some of these chambers of commerce to try to promote these schemes, so that they have a better understanding of the schemes. If the Member feels that more can be done, let us know and we will see how best to do so.