My CNC router spindle uses ER20, although I'm often using small shank cutters. I've found that by the time you've brought a 4-3mm collet down to grip a 1/8" (3.175mm) shank, you're working quite hard and you are not going to be able to tighten by hand enough to grip the cutter. Like a previous poster, I've bought a few imperial size collets to overcome the problem. Resting the cutter on a block is a good trick, though!
Sorry this doesn't help with finding oversize ER16 collets, though…