As small and medium enterprises (SMEs) contribute more than one-third to Malaysia’s economy, it comes as no surprise that this segment continues to be recognised by the new government and private sectors as an important growth engine.
According to Prime Minister Tun Dr Mahathir Mohamad, the Government is keen to increase the competitiveness of SMEs so that they can actively participate in the global value chain as well as the Industrial Revolution (IR) 4.0.
He noted that a total of RM10.5 billion was spent in 2017 to implement 168 SME development programmes which have benefited around 600,000 SMEs across all sectors.
“However, for our SMEs to be at par with those in the advanced economies much more needs to be done. For a start, the new Government has re-established the Ministry of Entrepreneur Development to help spur the growth of SMEs,” Dr Mahathir said in a message on SME Corporation Malaysia’s (SME Corp) 2017-2018 annual report.
“Today, digitalisation is re-shaping businesses by undermining conventional business operation.
“If you look at Alibaba which I visited recently, the giant online retail platform holds no inventory. Similarly, the world’s largest ride hailing service, Uber, does not own a single vehicle. SMEs need to look at these new business models and re-position themselves to seize opportunities from the digital economy.”
The message also revealed the lastest SME statistics, noting that SMEs contributed RM435.1 billion to the economy in 2017, a higher gross domestic product (GDP) growth of 7.2 per cent against 5.2 per cent in 2016.
This led to the GDP contribution of SMEs increasing further to 37.1 per cent from 36.6 per cent in the previous year.
Finance Minister Lim Guan Eng revealed last month during a press conference that there were still RM3.9 billion of funding available from Bank Negara Malaysia’s (BNM) funds. He had advised SMEs to take the opportunity to harness the financing available to grow their businesses.
Furthermore, Lim said that businesses could directly contact BNM as the Central Bank was always prepared to assist SMEs in the event they face issues such as lack of collateral.
BNM Assistant Governor Abu Hassan Alshari Yahaya elaborated more on this, stating that of the RM3.9 billion in available financing, RM3.3 billion was earmarked for SMEs in all sectors of the economy, followed by the Bumiputera Entrepreneur Project Fund-i (RM191.4 million), Premier Agriculture Sector (RM97.9 million) and micro businesses (RM6.9 million).
All these financing are expected to boost the SME sector’s contribution to the nation’s GDP to 42 per cent next year from the current 37 per cent, according to figures from the Ministry of Entrepreneur Development.
Its Minister, Mohd Redzuan Yusof had said that although the target was not very encouraging, the ministry was confident that it could be achieved if SME entrepreneurs were to start preparing themselves, especially in facing the Industrial Revolution 4.0.
He also said that the number of Bumiputera entrepreneurs in the SME sector has increased, thereby boosting the nation’s economic growth.
“If SMEs in other countries such Europe could contribute more than 50 per cent to the GDP of their countries, we are confident that the target to increase our SMEs contribution by five per cent is realistic and achievable.”
With various SME initiatives and financing available out there, backed by the new government and private sectors such as banks, the target of 42 per cent contribution to the country’s GDP seems plausible in the short to medium term.
New initiatives from government
A few highlights this past month saw new SME initiatives being proposed or set up by the new government, including SME Mart and the development of manufacturing SMEs in the aerospace sector.
Last month, Entrepreneur Development Deputy Minister Datuk Dr Mohd Hatta Ramli said he had instructed related agencies to deal with DEUM and SME Mart to help entrepreneurs market their products.
SME Mart is an initiative introduced by Dewan Ekonomi Usahawan Malaysia (DEUM) which will serve as a platform for SME entrepreneurs to sell their products on both the local and international market.
“SME Mart will be the one-stop centre for entrepreneurs to market their products and help them to lead a better life.
“At the same time, DEUM needs to ensure sufficient supply of SME products and maintain the quality of the products so as to meet the demands of domestic and foreign customers,” he said in a press conference after launching the SME Mart “Kedai Harapan Rakyat” at Taman Tasik Shah Alam.
DEUM president Datuk Seri Khairul Khuzaini Zamsani, who disclosed that a total of 1,230 SME entrepreneurs had registered with the mart, said DEUM was targeting to open 60 SME Mart branches nationwide by year-end.
The government also turned its attention towards a promising aerospace sector, where it aims to develop 30 new manufacturing SME players by 2020, in addition to the current 20 companies.
According to a Bernama article, National Aerospace Industry Coordinating Office (NAICO) head Shamsul Kamar Abu Samah said about 48 per cent or RM6.6 billion of the aerospace industry’s revenue in 2017 came from the aerospace manufacturing segment, followed by 46 per cent from the maintenance, repairs and overhaul (MRO) segment and the remaining from the engineering and design services segment.
Shamsul Kamar also said that NAICO, a unit under the Ministry of International Trade and Industry (MITI), will work with SMEs to ensure their long-term engagement in the aerospace industry.
“MITI through its agencies like the Malaysia External Trade Development Corporation (MATRADE), Malaysia Investment Development Authority and SME Corporation (SME Corp), will provide grants to assist the SMEs in the aerospace industry.
“These grants, however, only cover about 50 per cent of any investments needed as we want to see the (same) commitment from industry players and to determine if they really want to invest in this segment,” he added.
Meanwhile, International Trade and Industry Minister Darell Leiking said that the involvement of SMEs in the industry is encouraging.
“The 20 SMEs under the SME Corp’s Global Aerospace Manufacturing Industry Programme have shown positive growth and are expected to generate more than RM30 million this year.”
Boosting women’s involvement
Another area of focus for the Government is boosting women’s participation in businesses, given that this particular category currently accounts for less than one-quarter of the total number SME entrepreneurs in the country, as per the latest figures from the Department of Statistics Malaysia.
On this, a recent Bernama article highlighted that the Ministry of Women, Family and Community Development and its agencies will be working together with the Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank) to help boost women’s participation in business.
Deputy Prime Minister Datuk Seri Dr Wan Azizah Wan Ismail, who is also Women, Family and Community Development Minister had said that according to the Economic Census 2016, the number of women businesswomen was still small, accounting for only 20.6 per cent of the total number SME entrepreneurs in the country.
“I believe that the effective empowerment of the SME sector can alleviate the poverty rate,” she said at the launch SME Bank XCESS 2018.
“In this regard, the government has the responsibility in providing appropriate policies, while government agencies provide the right products and services, as well as advisory services as basic facilities for people’s development via SMEs.”
She added that a clear guideline was needed to identify and coordinate the roles and initiatives undertaken by each agency to avoid overlapping functions.
During this event, one of the new products launched by SME Bank was MySMELady which was crafted specially for women entrepreneurs with the aim to empower them through entrepreneur development programmes.
“Through MySMELady, women entrepreneurs who qualify can apply for financing of up to RM1 million with minimum collateral and successful applicants are given the option to withdraw up to 30 per cent of the total working capital through the Bank Islam debit card,” SME Bank chief executive officer Aria Putera Ismail.
The bank added that the clients of MySMELady will automatically become exclusive members of MySMELady Biz Club and they can enjoy exclusive privileges such as the entrepreneur development programs which include business coaching, attending forums on business opportunities, marketing, effective communications and many more.
Aside from this women-empowering initiative, SME Bank also launched MySMExport, a financing solution to assist SMEs who aspire to penetrate the global market and also for entrepreneurs who are already in the international arena but want to expand their reach in more countries.
“For MySMExport, entrepreneurs are offered financing of up to RM5 million without requiring any collateral, in addition to access to facilities and trade programmes with the Malaysia External Trade Development Corporation and Bank Muamalat,” he said.
According to Aria, the products were initiatives under the Pushing the Boundaries 1.0 project, which targeted to increase the SME’s contribution to the national GDP through the creation of new products.
Aid from SME Corp
On SME financing in 2018, SME Corp revealed that a total of RM13.5 billion has been allocated to further enhance SME access to financing. This is based on a total of 48 programmes planned as at April 2018 which are expected to benefit some 413,200 SMEs.
Among the key programmes for 2018 include:
• Ikhtiar Financing Scheme by Amanah Ikhtiar Malaysia (AIM) with the aim to reduce poverty rate in Malaysia by providing financing to poor households to enable them to undertake viable economic activity to upgrade their household income includes i-Mesra, i-Srikandi and i-Wibawa. A total of RM2.7 billion has been allocated for the programme in 2018 which is expected to benefit more than 350,000 households, including SME entrepreneurs.
• Majlis Amanah Rakyat (MARA) will continue to implement the Penyaluran Pembiayaan Perniagaan programme with an allocation of RM300 million to benefit 3,085 SMEs. The Programme targets to fund 17,500 recipients during the period of 2016 to 2020.
• Syariah-Compliant SME Financing scheme (SSFS) under SME Corp is being implemented with a total allocation of RM54 million which is expected to benefit 300 SMEs. The Scheme provides financing to eligible Malaysian SMEs whereby the Government has agreed to pay two per cent (percentage point) of the profit rate charged on the financing provided by 13 participating Islamic Financial Institutions.
• Perbadanan Usahawan Nasional Bhd (PUNB) will continue to undertake the PROSPER TERAS Scheme with the aim to upgrade the retail business of Bumiputera entreprenuers through brand standardisation, product selection and layout and integrated system as well as to provide exposure to Bumiputera entrepreneurs on the business know how, application of well organised and systematic management and operation methods. A total of RM30 million has been allocated for this purpose which is expected to benefit some 128 SMEs.
• Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) under the Minister of Finance Incorporated will continue to assist SMEs in all sectors to gain access to financing from participating financial institutions. As at April 2018, a total of RM16.7 billion had been allocated under various SJPP schemes until 2030.
Boosting SME financing
For private sector banks, the focus on SMEs is stronger than ever as these companies are now eyeing for a bigger piece of the loan market share from this growing segment.
In August, United Overseas Bank (Malaysia) Bhd (UOB Malaysia) entered into an agreement with SJPP to offer government-guaranteed financing to SMEs.
The press release read that under the agreement, SMEs can obtain collateral-free loans of up to RM1 million through the SJPP-UOB BizMoney financial solution, which is twice the amount available to customers under the existing UOB BizMoney package. SJPP will guarantee up to 70 per cent of the loan through its Working Capital Guarantee Scheme and Services Sector Guarantee Scheme.
UOB Malaysia chief executive officer Wong Kim Choong said that the partnership with SJPP will help SMEs gain access to additional financing to capitalise on more business opportunities and to meet their working capital needs.
“UOB Malaysia’s six decades of experience in serving Malaysian SMEs gives us a deep understanding of the opportunities and challenges they face,” he said in the statement.
“According to our research, more than half of Malaysian SMEs expect to grow their revenue in 2018. While the majority aim to expand overseas, many also plan to invest in technology infrastructure to help them drive business performance.
“To help businesses capitalise on these opportunities and to help them grow, UOB Malaysia is collaborating with SJPP to provide SMEs the flexibility of obtaining additional working capital without the need for more collateral.
“We also help SMEs increase their productivity for business growth. By providing scalable digital solutions, such as UOB SmartBusiness4, we help them streamline and automate their administrative systems and processes.
“We also offer SMEs a wide range of term-financing solutions to meet their working capital needs or to acquire fixed assets.”
UOB care for each SME growth cycle
Meanwhile, in a previous interview with The Borneo Post, UOB Malaysia’s executive director and business banking country head Raymond Chui detailed the current set of business products that the bank offers would encompass the entire life cycle of SMEs to ensure that their customers would be well taken care of, from their start-up phase to maturity.
For young start-ups, which have been registered for less than three years, UOB Malaysia is able to provide them with a current account (CA) proposition called BizCA+ that provides allows the customers to leverage off generous interest rates and unlimited foreign and local telegraphic transfers to help them with potential payments or orders in their business dealings.
“Once they (have) grown and matured, they have the choice to actually come back to us for more funding support as we understand that they will likely be in (the) phase of wanting to buy their properties for their business operation,” he said.
At the maturing stage, UOB Malaysia will be able to assist customers with their property asset acquisition through the bank’s Bizproperty scheme. For businesses moving into an SMEs mature stage, UOB Malaysia will once again be there to provide its customers with working capital requirements through letter of credits, trust receipts and bankers’ acceptance.
Beyond this comprehensive suite of products that will help support SMEs throughout their lifecycle, Chui had guided that UOB also offers its customers other solutions which include products that are largely based on providing SMEs with digital solutions that will help enhance the operations of their businesses.
Other banks which will be emphasising on the SME segment include RHB Bank Bhd (RHB Bank). RHB Bank aims to be the preferred SME and transaction bank in Malaysia, according to AmInvestment Bank Bhd (AmInvestment Bank), following an analyst briefing held by the group.
AmInvestment Bank had recalled that the group’s five-year (2018 to 2022) FIT22 strategy was to strengthen Malaysia and win in targeted segments; focus on niche overseas while exploring strategic partnerships and build a wining business model.
“For SMEs, the group will focus on growing the small business segment as well as build a connected ecosystem business to differentiate itself from its peers,” the research firm said.
“The group aims to be the preferred SME and transaction bank in Malaysia. By 2022, it seeks to be a top three SME bank in Malaysia from the present ranking of number four.”
“Currently, SME loans contribute to circa 16 per cent of the group’s total domestic loans. It has set the target to be raised to 20 per cent by 2022.
“Not only does the group see small businesses growing, it also sees it as a profitable segment. SMEs will remain a signification contributor to Malaysia’s GDP as well as continue to outperform the domestic economic growth rate.”
RHB offers online platform
On June 11 2018, RHB Banking Group (RHB) had introduced a revolutionary online platform, RHB SME Financing, targeted at Malaysia’s small and medium enterprises (SMEs).
“RHB SME Financing online platform provides SMEs with simple and fast term loans at competitive rates, with no collateral required, in an effort to empower SMEs to manage and grow their businesses as well as fund their working capital needs.
“SMEs now have an avenue to obtain working capital financing at their fingertips,” RHB’s head of Group Business and Transaction Banking Jeffrey Ng Eow Oo said at that time.
“Through this online platform, we target to approve RM100 million in SME loans over the course of one year.”
Fast-forward to June 26, RHB Bank also continued its expansion of the RHB SME e-Solution, offering the first total cloud based solutions aimed at providing greater connectivity and efficiency for SMEs. Originally targeted at the retail industry, RHB SME e-Solution was expanded to cover SMEs from all segments.
“With the expanded offering, the RHB SME e-Solution provides SMEs a holistic solution for seamless connectivity. With this, SMEs are able to achieve cost reduction and increase efficiency in their businesses,” Ng added.
Through the expansion, RHB had targeted to garner an additional 2,500 registrations in the next 12 months.
The following month saw RHB Bank partnering Asian Business Software Solutions Sdn Bhd (ABSS) and Payments Network Malaysia Sdn Bhd (PayNet) which operates Financio and JomPAY respectively, to offer a zero-cost payment platform to SMEs in the country.
“This strategic collaboration with ABSS and PayNet is a significant milestone in RHB’s aspiration to simplify SMEs’ business journey by offering both financial and technology-based solutions.
“Through the RHB SME e-Solution, SMEs will be able to enjoy an all-in-one-hassle-free solution that will contribute towards greater productivity and profitability
“In 2017, RHB saw a total of 834,000 transactions processed via JomPAY and through this partnership today, we are targeting to increase the participation of SMEs to 2,500 by end of 2018.”
Influenced by challenges in global, Malaysian economies
In spite of SMEs’ upbeat business sentiment going into the third and fourth quarters of 2018, as suggested in the RAM Business Confidence Index (RAM BCI) readings in June, SME Corp believed that growth performance will continue to be influenced by challenges in the global and Malaysian economy.
“Despite the optimistic outlook especially post-GE14, SME growth performance will continue to be influenced by challenges in the global and Malaysian economy,” SME Corp’s annual report read.
“On the global front, the anticipation of a faster pace of US interest rate normalisation in 2018, further inward-looking trade policies, sharper-than-expected growth moderation in China and geopolitical risks are expected to linger.
“These challenges could affect global demand and further dampen the consumer, investor and business sentiments affecting SMEs in Malaysia.
“Meanwhile, on the domestic front, concerns over the possible impact of removal of Goods and Services Tax (GST) with the implementation of Sales and Service Tax (SST), review of mega infrastructure projects and higher minimum wage could affect business cost and performance of SMEs.
“The rise of online business including e-commerce marketplace also raised some concerns and challenges to brick-and-mortar stores which are mainly SMEs.”
On the outlook of SMEs performance in 2018, the agency revealed that SME GDP growth is expected to expand at the lower-end of the official estimated range of seven to eight per cent.
“This estimation is based on actual overall GDP growth performance in the first half of 2018 at 4.9 per cent and the downward revision by BNM on the overall annual GDP growth projection to five per cent during the second quarter of 2018 GDP press conference, below the official overall GDP growth projection of 5.5 to six per cent in 2018 announced earlier.”