23 May 2013

SECTION 2:The infrastructure to support the

development and expansion of foreign economic activities of Kazakhstani SMEs

VI ASTANA ECONOMIC FORUMKazakhstan

Development Financing of SMEs – The Malaysian Experience

by

Mohamad Sabir Mohamad SabriSME BANK MALAYSIA

2

Overall Financial Landscape

Comprehensive financial landscape for SMEs with diversified sources of financing providers

Banking institutions are the main source for SME banking – 90%

DFIs are specialized institutions established and funded by the government for strategic sectors

3

Perspective of DFIs in Malaysia

DFIs are specialised FIs established by the Government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country The strategic sectors include agriculture, small and medium enterprises (SMEs), infrastructure, maritime, export-oriented sector as well as capital-intensive and high-technology industries The are 13 DFIs in the country of which 6 are prescribed under the Development Financial Institutions Act 2002 and supervised by the Central Bank

Role and functions in providing focused financial and development support to bolster human CAPITAL development, SOCIO-ECONOMIC

AGENDA and economic growth

Unique Individual Mandate

DFI MANDATE

Development Bank of Malaysia (Bank Pembangunan Malaysia Berhad)

Providing financial services focusing on capital intensive industry ie. infrastructure projects, maritime & hi-tech sector

SME Bank Malaysia (Bank Perusahaan Kecil & Sederhana Malaysia Berhad)

Providing financing and advisory services activities to SMEs involved in manufacturing, services and construction sectors

Export-Import Bank of Malaysia Berhad (EXIM)

Providing facilities to support exports & imports of goods, services and overseas investments

Agro Bank Malaysia (Bank Pertanian Malaysia Berhad )

Providing full range of financial services focusing on agricultural sector

Co-operative Bank (Bank Kerjasama Rakyat Malaysia Berhad)

Provide financing and accept deposits as well as producing satisfactory dividend for its members (co-operative)

National Savings Bank (Bank Simpanan Nasional)

To encourage savings, investments and smart financial management among Malaysians to increase quality of life

The remaining 7 entities which are not governed by the Central Bank have their own respective specific mandates

5

Government’s Agenda – 10MP and ETP SME Growth vs. GDP Growth (2001-2011)

In efforts to promote Malaysia as a high-income

nation by 2020, the Government targets to

grow SME industry’s contribution to the nation’s

GDP to 41% in 2020.

33% 33% 34% 35% 36% 37% 38% 38% 39% 40%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total SME contribution to GDP (2011-2020)

SME Bank will provide funding

assistance to businesses that are in

the Development and Growth

stage

5.1

6.0e

6

The Master Plan charts the policy direction of SMEs in all sectors through the year 2020 towards achieving a high income nation in line with the New Economic Model (NEM) Phase I: new SME Development Framework and broad policies and strategies to achieve the NEM goals; Phase II: Master Plan is to look into the specific action plans and the monitoring mechanism

Government’s Agenda - SME Master Plan (2012-2020)

Innovation and technology adoption

Access to

financing

Intensify formalisation

Access to market

Legal and regulatory

environment

Infrastructure

Human capital and entrepreneurship development

Increase business formation

Expand number of high growth and innovative firms

Raise productivity

Focus AreasStrategic Goals

7

SME Bank Malaysia – Vision and Mission

To Be A Full-Fledged Specialised Financial Institution To Nurture Small Medium Industry Enterprise For Nation Building To Support

Government’s Economic Agenda In Developing SMEs As An Engine Of Growth

&

8

Shareholding and Reporting Structure

MOF Inc. Central Bank of MalaysiaMITI

SME Bank Malaysia

SupervisingMinistry

Shareholder100% owned

RegulatorUnder DFIA

2002

SME Financing• Manufacturing sector• Services sector• Construction sector

• Authorized Capital RM5.0 billion

• Paid up Capital RM1.35 billion

9

Main Roles – Integrated Approach

MEDIUMMEDIUMSMALLSMALLMICROMICRO

Small Medium Enterprises (SMEs)

DevelopmentBanking

High Impact Developmental Program ThroughSynergized Approach of Financial Assistance and Intervention

Financial assistance serves as enabler

for SMEs, as engine of growth, to move up the value chain and create

viral effect to the economy

Hand-holding approach from the entry point

to inculcate business acumen and propel

SME business to the next level

FINANCING INTERVENTION

10

Industry Focus

Islamic

Business Model

Outcome Driven SMEs EcosystemTarget Market

Need Based SMEs

Merit Based SMEs

Program-Managed Lending (PML)BUSINESS MODEL TO SUPPORT GROWTHNurturing & Intervention Product Terms Risk Parameters

Source of Funds Pricing

MERITBased

Desired Outcomes:

Development Investment to target, Contribution of Ecosystem in Target Economic Sectors, GDP

contribution of SME, Market Share

Desired Outcomes:

Development Investment to target, Contribution of Ecosystem in Target Economic Sectors, GDP

contribution of SME, Market Share

Government Fund

Government Fund

SME 1SME 1

SME 2SME 2

SME 3SME 3

SME 4SME 4

NEED Based

SME 5SME 5

SME 6SME 6

Desired Outcomes:

Sustainability,Development

Impact

Desired Outcomes:

Sustainability,Development

Impact

Market FundMarket Fund

Financing and Intervention; Partnership

Financing and Intervention; Partnership

Cash Flow and Development

Strength

Cash Flow and Development

Strength

Risk and Financial Strength

Risk and Financial Strength

11

12

Source of Funding

GENERAL

GOVERNMENT

MARKET

From shareholders’ contribution

Internally generated funds

Sourced from Government Loans Loans arranged by Government

with Domestic or Foreign Fund Providers

Sourced from the market – via corporate deposits and/or bond/sukuk issuance

13

Type of Financing

• Bai’ Bithaman Ajil• Bai’ Istisna’• Ijarah• Ijarah Thummal Bai’

• Land • Building• Machineries• Equipments• Motor Vehicle

FIXED ASSET

• Fixed• Revolving

• Bai’ Murabahah• Bai’ Dayn• Bai’ Inah• Kafalah

WORKING CAPITAL

14

Entrepreneur Premise Program

25 Complexes/434 Lots

Financing Facilities

Matching Grant for

Technical & Training

Advisory Services

Entrepreneurship Training

15

Entrepreneurial Training

Islamic

SME Bank’s Existing Clients

Existing/Would-be Entrepreneurs

EPC Participants

Scope

Intensive Training

SMEs Performance Enhancement

Training

Basic Training

New Customer Orientation Training

Type

TRAINING

Establishment of Centre for Entrepreneur Development & Research (CEDAR)• To support SME Bank’s role in the area of human capital

development i.e. providing capacity building & capabilities enhancement for SMEs

16

A Changing Scenario of Development Financing

• DFIs have been forced to become less dependent as Government face more budgetary constraints and development aid declines• To use own financial strength to intermediate between the providers and users of capital• To improve Balance Sheet to enhance attractiveness of capital

Government’s Budgetary Constraint

• Developmental role or development assistance is often non-recoverable but complements development banking, thus, both functions become mutually reinforcing• The functions are bundled together since the skills required for assessing potential investments are similar to those required to address capacity building and other development needs

Complementary Function

17

On-Going Challenges – Balancing Act

DFIs are required to be self sustaining, and must increasingly raise funds independently, with or without government guarantees;

Need to pay special attention to the entity rating and adopt prudent risk management policies and practices;

DFIs would end up prioritising their financing activities and certain high risk segments of the market would left unserved ;

Careful balance must be struck between investments with high returns and less secure or secured but attractive in pursuit of Government’s development agenda ; and

Balance set of skills to enhance understanding of both Banking & Business capability

18

Development Financing – Conclusion

For DFI to succeed within the rapidly changing environment, they must meet the challenges for an effective management;

Requires sound governance and financial management, flexibility and the ability to balance cost-effective intermediation and risk management with outreach through smart partnerships, capacity building and knowledge management;

DFIs need to sufficiently generate income through diversification of income stream which could be used to cross subsidize its developmental role

For business. For growth. For life.http://

www.smebank.com.my

or contactm.sabir@smebank.com.my