Quest for stability by regulators hurting small business
Inside Small Business
February 8, 2018
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, supports a key finding in the draft Productivity Commission report, Competition in the Australian Financial System, which states the benefits of competition to the individuals and businesses for whom the financial system exists, such as access to capital, are being reduced in the quest for stability.
It also says that prudential regulation substantially limits the scope for traditional price competition in banking.
“Australia’s prudential rules are focused on system stability, which results in limiting small-business credit,” Ms Carnell said. “It also motivates banks to focus lending against real property security, such as a business owner’s home.
“This can increase the cost of capital on other lending and to a large degree, limit the ability of SMEs to get funding against other business aspects, such as cashflow. Resounding feedback from the SME sector is that access to capital remains a significant barrier despite a healthy pipeline of businesses suitable for investment.”
Ms Carnell said ensuring SMEs have access to capital is critical to enable their businesses to grow.
“Australia’s 2.2 million SMEs employ two thirds of Australian workers and contribute $380 billion to the economy. While there should be a focus on stability, any policy being developed needs to look at the impact and unintended consequences on lending to SMEs. If there is no access to capital, then you can’t invest.
“I also note the report find that the institutional responsibility in the financial systems for supporting competition is loosely shared by the Australian Prudential Regulatory Authority, the Reserve Bank of Australia, The Australian Securities and Investment Commission and the Australian Competition and Consumer Commission. There is a danger of inadequate oversight of commercial lending practices for SMEs,” Ms Carnell concluded.