The World Bank has injected US$20 million into Hong Kong finance company SMEloan, which was set up to help break a lending squeeze on small- and medium-sized enterprises (SMEs) and now aims to export its service throughout the Asia-Pacific region. The investment was announced yesterday by Ming Siu, chairman and chief executive of SMEloan, and Vipul Bhagat, International Finance Corp (IFC) principal investment officer for East Asia and the Pacific. The IFC is a wholly owned subsidiary of the World Bank, established to back promising enterprises in developing economies by providing equity capital. IFC is also seeking to invest in mainland banks. It previously invested US$22 million in the Bank of Shanghai after it was invited by the mainland to provide technical assistance to the bank, and plans to increase its investment. 'We are very pleased to be able to support SME growth both in Hong Kong and southern China and, just as importantly, to help expand SMEloans and access to capital by SMEs which face problems raising capital almost every day throughout the region,' Mr Bhagat said. As a new partner in the venture, IFC was marketing the SMEloan application and monitoring service to financial institutions in China, the Philippines and South Korea, Mr Bhagat said. Mr Siu said SMEloan received US$25 million in initial seed capital from its founding shareholders - which included United States private-equity investor Whitney & Co. It had received subsequent additional equity investments, and a HK$600 million line of credit from Standard Chartered Bank. This capital had been used to develop its proprietary Internet-driven loan-processing and monitoring system and also to make 'hundreds of millions of dollars' available in unsecured loans to more than 100 SME customers in Hong Kong, Mr Siu said. It planned to licence the system to Asian financial institutions. Mr Siu said in contrast to the idea that unsecured lending to SMEs was risky, SMEloans had experienced a loan loss ratio in its 18 months of operation of just 1.5 per cent on its total lending portfolio, which was lower than the delinquency ratio experienced on mortgage loans by banks. This was despite loans made on an unsecured basis - while banks generally expected property as collateral security - and that loans were provided as a permanent source of working capital, rather than generally short-dated term facilities, Mr Siu said. Mr Bhagat said: 'There is a little bit of a myth in the marketplace generally that lending to SMEs is riskier.' In June last year the Hong Kong Monetary Authority released the findings of a survey of SME funding which indicated there was a 'gap between the demand for bank credit by SMEs and the supply of funds by banks'. SMEs complained bank financing was inadequate, said the HKMA, and that banks generally adopted conservative lending policies and relied mainly on the availability of collateral. Falling property prices during the Asian financial crisis had made it difficult for SMEs to obtain bank finance, it noted. Among remedies suggested by bankers to improve the provision of credit were that a Credit Reference Agency be established for SMEs; and that SMEs improve their disclosure of financial and other information, and enhance their accounting standards. But Mr Siu said yesterday the proprietary loan application and monitoring package developed by SMEloans did not rely on financial statements, which were generally out of date. 'Yes SMEs suffer from a lack of transparency, no financial statements, no business plan. But the owners also know how much business they do, how successful they are, and who owes them money,' he said. 'What we do is build that information into a lending model and what makes it unique is that we don't look at financial statements.'