Funding the future of Malaysia

FUNDING is key to a nation's growth, especially since it ignites businesses and economy. Malaysia has definitely seen this as a catalyst and answered the call.

There are several entities, policies and government-linked bodies that offer business funding. A group that has been consistently targeted for funding is the small and medium enterprises (SMEs).

Source from (Business Times): http://www.btimes.com.my/Current_News/BTIMES/articles/30FUND/Article/
Published: December 31, 2012

SMEs, which include microenterprises, have been intrinsic to Malaysia's economic transformation process.

In the past, SMEs played an important role in fostering growth, employment and income. Through the lens of long-term development, Malaysia has been a success story, enjoying significant economic and social progress for several decades and, thus, facilitating Malaysia's transition from a low-income to middle-income nation, and now pushing to become high-income.

At the moment, SMEs are seen to be the backbone to the country, contributing 99.2 per cent (518,996) of total businesses and employing close to five million people, constituting 32 per cent of the country's gross domestic product (GDP).

As much as SMEs are doing well, there are some issues the group faces. The challenge is to create a healthy, competitive business environment in which firms of all sizes can function properly.

One of the main challenges faced by SMEs is the access to finances. SMEs around the world see access to finance as their biggest stumbling blocks to growth. Eighty per cent of the Organisation for Economic Co-operation and Development (OECD) member countries and 90 per cent of non-OECD countries have identified that there is a financing gap.

Except debt financing, there is no huge difference between OECD and non-OECD countries in identifying a financing gap. If the business landscape can be visualised as a pyramid, financing gap is a problem particularly for SMEs, unlike microenterprises and large firms, which are banks' primary target.

This is definitely an issue that many have seen as a problem to tackle. Malaysia has definitely nipped this issue in the bud with various programmes, bodies and funding set up. In particular, this has been reflected in the national development agendas, namely the Ninth Malaysia Plan and the Eighth Malaysia Plan.

During the Ninth Malaysia Plan, the principal SME policy was the development of a competitive, innovative and technologically strong SME sector, which in turn would contribute to the domestic economy.

Strategies were directed at acquiring technologies to propel SMEs up the value chain in the manufacturing, agriculture and services sectors. This included entrepreneurship programmes where advisory and outreach services were provided to SMEs.

This was to equip SMEs with new and improved management and business practices, methods in production, quality improvement, marketing and distribution.

For the Eighth Malaysia Plan, Malaysia introduced a wide range of assistance programmes for SMEs, all aimed at making them stronger and more competitive. This included assistance through the Small and Medium Industries Development Corporation (now SME Corp Malaysia) to help SMEs to enter export markets.

The plan also helped in nurturing ICT-based SMEs by assisting local ICT and multimedia SMEs, particularly start-up companies. In terms of financing, there were several schemes undertaken by the government, Bank Negara and banking institutions.

Other than this, Malaysia, under 2013 Budget, announced some interesting news for the SMEs. It believed that SMEs have played an important role in supporting the nation's economic transformation.

To accelerate the growth of SMEs and the expansion of industrial areas nationwide, a fund of RM1 billion will be provided under the SME Development Scheme and managed by the SME Bank.

This is in line with the recently launched SME Masterplan (2012-2020), which will be a catalyst in accelerating the growth of SMEs through innovation and productivity.

The master plan outlines the implementation of 32 initiatives, including six high-impact programmes (HIP) with an allocation of RM30 million.

Along with this, Malaysia has also introduced a fund worth RM10 billion under the Working Capital Guarantee Scheme for SMEs to facilitate access to working capital. The scheme guarantees up to a maximum of RM2.5 million to qualified companies.

Also, the government has established the Tabung Ekonomi Kumpulan Usaha Niaga (Tekun) for entrepreneurs to commence and develop their businesses. To date, Tekun has extended loans totalling RM2.24 billion to 224,175 entrepreneurs nationwide. In 2013 the government will provide an allocation of RM350 million to Tekun in aid of the SMEs.

Other than this, the government recently introduced MyCreative Ventures Sdn Bhd (MyCreative) to elevate the creative industry in the country.

It is a government investment arm to spur Malaysia's creative industry via strategic and innovative funding in a form of equity or debt investments. This introduction is after the government allocated RM200 million for this purpose.

MyCreative will invest via equities or loans from allocated funds in potential viable Malaysia creative businesses. It looks to boost the attractiveness of the Malaysian creative industries. It will also look to increase gross income from the creative industry to significantly contribute to the national gross domestic product (GDP).

On the whole, the company is expected to elevate the status of the Malaysian creative industry via public awareness and social impact. With this, creative entrepreneurs in visual arts, performing arts, music, literature, content creation, fashion and design, as well as traditional and cultural arts can be applicable for this funding.

Aside from government support, Malaysia encourages angel investors. These investors not only provide capital, but also non-monetary support, which translates to lending their expertise in the industry and the markets in order to catalyse long-term business success.

Angel investors are high net worth individuals who have a solid and strong background of industry experience and networks, and are able to value-add in the deals they invest in. One example is the Cradle Fund, an agency under the Ministry of Finance, which manages the Cradle Investment Programme. It is a pre-seed funding programme for early-stage technology businesses to ensure that their product is commercially viable.

Malaysia is heading in the right direction and addressing the distress calls from the SME community. It is evident that the programmes and initiatives have somewhat supported SMEs in achieving their current standing today, chalking up 99.2 per cent of total business establishment in Malaysia. SMEs also help to employ around 5.6 million people, which contribute 32 per cent to the Malaysian GDP and 19 per cent of total exports of the nation.

With all the funding available, SMEs in the country have a lot to look forward to grow their business, not only locally but regionally and possibly globally. Malaysian SMEs that have done well for themselves include Kawan Foods, Secret Recipe, among others.

It's time for more Malaysian SMEs to lead in the region.