The reaction to the federal government’s response to the Murray Inquiry’s final report has generally been positive.
The Australian Bankers Association said in a statement yesterday “the response marks a significant step in cementing Australia’s economic future” and noted the FSI has “delivered good outcomes for savers and retirees”.
The Financial Planning Association of Australia hailed the response as “a win for consumers and the professionalism of financial planning.”
Consumers will certainly benefit from a number of recommendations designed to ensure our superannuation system is competitive, efficient and transparent with the highest standards of governance.
And people who want to buy a property will be encouraged by the government’s agreement that the gap between average mortgage risk weights should be narrowed, which will reduce the pricing advantage the larger banks have over their smaller counterparts thereby increasing competition.
But whilst retail customers have reason to be pleased with the government’s response, the 800,000 Australian small businesses that rely on external debt to run and grow their business are unlikely to be as enamoured.
None of the FSI’s forty-four recommendations focussed specifically on the SME sector.
In the government’s twenty-six page response, the only reference to small business was in the unfair contract term provisions recommendation, where the government agreed small businesses should be provided with the same protections against unfair terms as those that currently apply to consumers.
Funding for SMEs a priority
Perhaps the biggest area of hope for SMEs is the government’s intention to facilitate the entry of disrupters in order to unlock new sources of finance for the wider economy and to support competition.
SMEs are yet to recognise the potential of fintech lenders to challenge mainstream business credit providers, with recent research revealing that only 9% of SMEs could name a fintech lender and only one in five of these could describe fintech’s product offering.
The government believes the development of a crowdsourced equity funding market in Australia is an urgent priority to support the funding needs of early stage innovators. It has committed to develop a regulatory framework to facilitate crowdsourced equity funding by the end of 2015.
At the same time it will consult with the community on crowdsourced debt funding in parallel with legislation to implement crowdsourced equity funding.
Crowdsourced equity funding will be of benefit to early stage innovators but investors are less likely to be interested in taking equity in the more traditional “mum and dad” type SMEs.
Crowdsourced debt funding is an entirely different product notwithstanding the platform is similar. Online lenders whether they are P2P operations or balance sheet lenders will in time become a significant source of funding for SMEs so it’s a positive sign that the government wants to encourage the establishment of disruptive funding models.
The government agreed with the Financial Services Inquiry’s recommendation to “strengthen the focus on competition in the financial system by reviewing the state of competition in the sector every three years.”
This statement when combined with the absence of SME specific recommendations in the FSI report seems to imply that neither the FSI nor the government believe there is currently a lack of competition in SME lending.
Most SMEs feel there is a lack of genuine competition in the SME lending market and that post the Global Financial Crisis, the banks have tightened credit standards and remain reluctant to lend without property security.
Perhaps by the time the next review is conducted, the fintech lenders will have been able to inject competition into this market but in the meantime the failure of the FSI and the government to identify and address this issue is a lost opportunity.
This lack of focus on funding for SMEs highlights a challenge for Malcolm Turnbull and especially his new small business minister, Kelly O’Dwyer, whose predecessor Bruce Billson was a popular, active and passionate supporter of small business.
Turnbull, with his “top end of town” background and O’Dwyer, with her additional and even potentially conflicting role of Assistant Treasurer, have the job in front of them to convince SMEs that this new government understands and is fully committed to supporting the sector.
Neil Slonim is a business banking advisor and commentator and is the founder of theBankDoctor.org, a not-for-profit online source of free, independent SME banking advice.