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RBA Round Table Opening Remarks

Opening remarks delivered by Mark McKenzie – Chair, COSBOA

Good morning.

COSBOA is very pleased to have been invited to co-chair this important roundtable. Today we are represented by myself as Board Chair, our Deputy Chair Mr David Gandolfo and our CEO Mr Peter Strong.

I note that we also have Kate Carnell, the Small Business and Family Enterprise Ombudsman with us today. Kate and her team are providing a vital conduit for the redress of many of the issues that are constraining the success of small business and the role of the Ombudsman is unreservedly supported by COSBOA.

The Council of Small Business Organisations of Australia is just that – a Council of Organisations who seek to champion the policy issues that are important to Australia’s 2.5 million small business owners – and the more than 4 million Australians that they employ. As already highlighted by Philip Lowe and Shane Elliot, there is nothing small about the contribution of Australia’s small business sector to the national economy.

Today, the small business sector is the primary source of income for more than 6.5 million Australians – almost 60% of the Australian workforce.

But the real potential of small business is yet to be realised.

More and more Australians (of all ages) are shunning traditional forms of employment to have a go at running their own business.

They are doing so in a national and global economy that is continually generating new business opportunities – opportunities that are being shaped by the combined market forces of technological innovation, ever changing consumer behaviors, and increasing accessibility to the global marketplace.

Within this context, the future success of Australia’s small business sector will be directly related to the ability of the finance sector to accommodate the evolving financing requirements of small businesses.

I put it to you that many of the issues we will hear today will not be new.

We will likely hear about familiar difficulties associated with securing affordable start-up capital, as well as difficulties encountered in securing the capital needed for a small business to transition from start-up to infancy, and then through to maturity.

In fact, small business owners will often tell you that the only time that their banks are interested in providing finance is when they no longer need it.

The apparent lack of progress on small business lending issues in recent years begs a question…..

Why are we, yet again, discussing the same old challenges about small business lending policies and practices given the increasing significance of small business to the current and future well-being of the Australian economy?

I suggest that the answer to this question lies in answering two pre-requisite questions. First, what is a small business? And second, how does the finance industry best engage small business for mutual benefit?

Small business is not, as many appear to mistakenly believe, just a ‘bunch of shops’. The Australian Small business sector is, to quote our CEO Peter Strong, as diverse as the people that own and work in it.

Today small businesses include solo home-based businesses, husband and wife professional services businesses, personal and home services businesses, pharmacies, financial brokers, independent grocers, service stations, newsagents, retail outlets, single person trade-based businesses and a variety of franchises.

These businesses operate in the traditional economy, or are carving new frontiers in the emerging share economy - or are attempting to bridge both.

As a result, the structure of the balance sheet and the nature of normal cashflow of small businesses in Australia is highly varied, leading to a question about how well the current range of small business lending products accommodate this diversity.

For my part, I suggest that we still have a way to go in this regard.

My hope is that our discussion of today leads to a greater understanding of the varied needs of small business which, in turn, generates some ideas about some innovative products that better meet these needs in the future.

The answer to the second question is more vexed.

The lean management, time poor nature of small business means that business owners are generally unwilling to invest the time needed to jump through the many hoops that are characteristic of so many business lending products at present.

More importantly, small business owners do not have time to sit in on focus groups to discuss how big business and government departments might adapt their operations to better suit the needs of small business.

The result is that many public and private sector organisations are forced to create an artificial small business construct and then strive to develop their products around that construct.

Such an approach is unproductive and is, I would suggest, a large part of the reason why we are still collectively discussing how banks might better develop lending products for small business – more than 5 years after the RBA initiated the first of these forums.

The takeaway for me is that our discussion of today cannot, and must not, be the end of the conversation between banks, regulators and the small business community about lending policies and practices.

There is a need for banks to establish formal mechanisms for facilitating a continual dialogue with small business, by establishing ongoing consultative mechanisms with small business customers, their representative organisations like COSBOA, and the Small Business and Family Enterprise Ombudsman.

For our part, COSBOA is committed to playing its part in this process and we look forward to a constructive and productive dialogue today.

Left to Right: Mark McKenzie Chair COSBOA & ACAPMA CEO, Shayne Elliott Chairman ABA & CEO ANZ, David Gandolfo President CAFBA & Vice Chair COSBOA, Philip Lowe Governer RBA, Anna Bligh CEO ABA, James Shiptoib Chairman ASIC, Peter Strong CEO COSBOA, Dr Sean Carmody Executive General Manager APRA, Anne Scott ASBFEO

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