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Focused and Coordinated Development of Small and Medium Enterprises (SMEs):

The Malaysian Experience

Conference on SME Financing: Issues and Strategies

10 – 11 May 2005Lahore, Pakistan

Presentation by Mr Marzunisham OmarDirector, SME Special UnitCentral Bank of Malaysia

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SME Development Framework

Initiatives to Enhance Access to Financing by SMEs

Role of SME Special Unit at Bank Negara Malaysia

Presentation Outline

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Importance of SMEs

Thrust of national economic policy– Strengthen domestic demand– Promote and diversify endogenous sources of

growth– Infuse dynamism into economic sectors

SMEs as an impetus for broad-based growth– Provide linkages between various subsectors – Source of dynamism and agility– Indigenous enterprises which may evolve into

larger enterprises

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Status of SMEs Potential for SMEs to contribute more to domestic economy

SME as a % of total Japan South Korea Thailand Malaysia

Establishments / Enterprises

99.7% 99.8% 99.7% 92%*

Employment 69.5% 85.6% 68.9% 33.3%*

Contribution to GDP 55.3%49.1%

(Gross Output)38.9% 6.0%*

* For Malaysia, based on SMEs in the manufacturing sector only

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BNM SME Survey

To assess state of SMEs, their requirements and issues

8,000 SMEs responded

Results: – Low contribution to GDP;– Domestically oriented;– Constrained by capacity; level of technology;

access to markets and resources to upgrade skills & production process; and

– Financing:• 62% indicated no problems obtaining financing • Main sources are banks, own capital, and from

family and friends

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Enhance coordination and outreach of SME

developmentacross all

sectors

Enhance access to financing by SMEs

Enhance SME’scapacity to

compete withfocus on quality,management &

marketing

 

Build enabling infrastructure to support SMEdevelopment

Comprehensive and Coordinated Approach to SME Development

Small & Inward Looking

Internal & External

Constraints

Low Value Add & Less

Competitive

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Inter-Ministry Committee comprising 10 key Ministries and Agencies involved in SME development

Chaired by Governor of Bank Negara Malaysia

SME Steering Committee

Formed in Oct 2002 to drive initiatives to strengthen infrastructure for SME development

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National SME Development Council

Formed on 13 August 2004:

– Chaired by Prime Minister

– Bank Negara Malaysia appointed as Secretariat

Objectives:

– Formulate broad policies and strategies;– Provide direction for comprehensive development

of SMEs across all sectors; and

– Oversee coordination of and ensure effectiveness in policy implementation

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National SME Development Council: Initiatives

Definitions for SMEs in various sectors

Establishment of a comprehensive National SME Database

Enhanced Management and Publication of SME Statistics

Coordinated training and human resource development

Access to financing:– SME Bank– Interest subsidy in place of special funds– Securitisation of SME loans

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SME Development Framework

Initiatives to Enhance Access to Financing by SMEs

Role of SME Special Unit at Bank Negara Malaysia

Presentation Outline

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Initiatives by Bank Negara Malaysia

SME Special Funds5 funds with allocation of RM 8.9b (USD 2.3b), i = 3.75% to 5.00 %

Credit Guarantee CorporationProvide guarantee to SMEs lacking collateral and track record

ERF Sdn BhdSpecial purpose vehicle to assist Bumiputera enterprises

Small Debt Resolution SchemeProvide assistance to viable SMEs constrained with NPLs

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Banking System: Other Services to Enhance

SME Financing

SME Units

Provision of financing and ancillary services to SMEs

Bumiputera Development Units

Address financing and developmental needs of Bumiputera entrepreneurs

Complaints Unit

Provide a dedicated channel for customers to raise complaints with banking institutions

Display of Client Charter

Display a Client Charter on the processing of loans applications:

– documents & information required;

– eligibility criteria; and

– processing time.

Banking System: Services for SMEs

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Banking System: Main Provider of Financing to SMEs

USD8.3 b loans approved to 92,000 SMEs in 2004– January – March 2005: USD2.1 b loans approved

USD26.4 b loans disbursed in 2004

Loans to SMEs accounted for 40% of outstanding business loans

2/3 of total loans channeled to 3 main sectors – Wholesale and retail trade, restaurants and hotels,

manufacturing and construction

NPLs declined to 12% of total SME loans

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Development Financial Institutions and Venture Capital

Complement role of banks, esp. to finance start-ups

Development Financial Institutions:

– In 2004, loans extended by 5 DFIs to SMEs amounted to USD0.8 b

Venture Capital:

– Several funds established to promote venture capital industry

– VCCs invested mainly in ICT, pharmaceuticals and manufacturing

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SME Development Framework

Initiatives to Enhance Access to Financing by SMEs

Role of SME Special Unit at Bank Negara Malaysia

Presentation Outline

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SME Special Unit at Bank Negara Malaysia

Established to lead BNM’s efforts to support SMEs

Roles:– Formulate strategies to enhance access to

financing– Provide information and advisory services to

SMEs– Secretariat of National SME Development

Council

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End of Presentation