Why access to financing is complicated in Brunei

Reading Time: 2 minutes
Arno Maierbrugger
By Arno Maierbrugger

What is the most problematic factor of doing business in oil-rich, super-wealthy Brunei?

Ironically, it is access to financing. At least this is what the Global Competitiveness Report 2013 of the World Economic Forum found out, and it is undermined by reports from local businesses which complain that they are often left out in the rain by banks when asking for loans.

The problem is multi-faceted. On the one hand, Brunei has a small banking industry and services or non-services don’t differ much between the banks. It is also that bank services in Brunei are comparably expensive, and there is a lot of red tape to master, as long queues and waiting times at local banks prove, which, in turn, can also be blamed on poor Internet banking facilities in the Sultanate. Furthermore, despite their high capitalisation, banks in Brunei prefer catering to individuals rather than to companies, and the corporate loan business is not too much in the focus.

On the other hand, Brunei’s corporate world mainly consists of small and medium companies as main petitioners for loans that tend to “accuse” banks and financial institutions of not giving them proper access to financing.

The banks are indeed reluctant because they claim that many of the small and medium enterprises are unable to produce comprehensive balance sheets or at least profit-loss accounts from which the financial standing of the company could be discerned, let alone a working capital cash flow management, thus granting a loan would disregard the banks’ internal regulations.

There is a solution to this problem, but it only works if both sides are ready for improvements. The banks would have to work together with state agencies to create tailor-made loan packages for companies and also could enhance this service by providing credit advisory or similar personalised services that would ascertain that companies manage the borrowed money effectively.

Small and medium businesses would have to work on improving their financial literacy in order to create financial statements that allow them to get access to reasonable financing. Here, again, state agencies could help with advice and information, for example in a strategy to promote and facilitate the development of young entrepreneurs, including their funding.

It is not new that sound financial management is the pillar for every start-up and even more for an established business. As long as there is an understanding that banks are “charitable institutions” in the cash-rich environment in Brunei, then there is something wrong with the business mindset. As long as small and medium enterprises rely on simple book keeping for their finances they won’t get sufficient finance to expand their business and the stalemate continues.

What do you think can be approved in corporate banking in Brunei? Where are the main weaknesses on both sides? Let us know through Twitter: @insideinvestor

This comment is part of Inside Investor’s weekly column series in Brunei’s leading newspaper Brunei Times and is published every Monday.

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Reading Time: 2 minutes

By Arno Maierbrugger

What is the most problematic factor of doing business in oil-rich, super-wealthy Brunei?

Reading Time: 2 minutes

Arno Maierbrugger
By Arno Maierbrugger

What is the most problematic factor of doing business in oil-rich, super-wealthy Brunei?

Ironically, it is access to financing. At least this is what the Global Competitiveness Report 2013 of the World Economic Forum found out, and it is undermined by reports from local businesses which complain that they are often left out in the rain by banks when asking for loans.

The problem is multi-faceted. On the one hand, Brunei has a small banking industry and services or non-services don’t differ much between the banks. It is also that bank services in Brunei are comparably expensive, and there is a lot of red tape to master, as long queues and waiting times at local banks prove, which, in turn, can also be blamed on poor Internet banking facilities in the Sultanate. Furthermore, despite their high capitalisation, banks in Brunei prefer catering to individuals rather than to companies, and the corporate loan business is not too much in the focus.

On the other hand, Brunei’s corporate world mainly consists of small and medium companies as main petitioners for loans that tend to “accuse” banks and financial institutions of not giving them proper access to financing.

The banks are indeed reluctant because they claim that many of the small and medium enterprises are unable to produce comprehensive balance sheets or at least profit-loss accounts from which the financial standing of the company could be discerned, let alone a working capital cash flow management, thus granting a loan would disregard the banks’ internal regulations.

There is a solution to this problem, but it only works if both sides are ready for improvements. The banks would have to work together with state agencies to create tailor-made loan packages for companies and also could enhance this service by providing credit advisory or similar personalised services that would ascertain that companies manage the borrowed money effectively.

Small and medium businesses would have to work on improving their financial literacy in order to create financial statements that allow them to get access to reasonable financing. Here, again, state agencies could help with advice and information, for example in a strategy to promote and facilitate the development of young entrepreneurs, including their funding.

It is not new that sound financial management is the pillar for every start-up and even more for an established business. As long as there is an understanding that banks are “charitable institutions” in the cash-rich environment in Brunei, then there is something wrong with the business mindset. As long as small and medium enterprises rely on simple book keeping for their finances they won’t get sufficient finance to expand their business and the stalemate continues.

What do you think can be approved in corporate banking in Brunei? Where are the main weaknesses on both sides? Let us know through Twitter: @insideinvestor

This comment is part of Inside Investor’s weekly column series in Brunei’s leading newspaper Brunei Times and is published every Monday.

brunei_times_logo

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