Financing SMEs and Entrepreneurs 2022

29. Malaysia

Key facts on SME financing

SMEs are the backbone of the Malaysian economy, accounting for 97.2% of total business establishments, generating 38.2% of GDP and providing employment for 7.3 million people. In the last few decades, a comprehensive financing ecosystem has been put in place to provide diversified funding options for SMEs from both public and private institutions. This has enabled Malaysian SMEs to continue to have access to diversified sources of financing to address their needs at various stages of development.

However, 2020 was a year like no other. The COVID-19 pandemic plunged the world into a public health crisis that saw many losing their lives, and the livelihoods of many more were disrupted as entire economies were forced to a near standstill. Malaysia was not spared as the economy recorded a significant contraction especially in the second quarter of the year. Amid these challenges, the Central Bank of Malaysia (BNM) took swift and broad-ranging measures to cushion shocks to the financial system and the economy. In doing so, BNM co-ordinated closely with the Government and the financial sector to preserve both lives and livelihoods. A top priority was to mitigate the impact of the economic contraction and promote conditions for a sustainable economic recovery. BNM reduced the Overnight Policy Rate to the lowest level in Malaysian history and implemented measures to ensure adequate liquidity and orderly market conditions. Debt relief measures and funding programmes for SMEs were rolled out at an unprecedented scale to help affected borrowers and businesses to alleviate cash flow constraints and to maintain credit flows to the economy.

Financial institutions continued to play a key role in providing assistance to SMEs by approving a total MYR 66.8 billion in new business lending for SMEs in 2020.

Guarantee schemes perform a pivotal role in helping viable SMEs that lack collateral and track record to obtain financing. In 2020, the Credit Guarantee Corporation Malaysia Berhad (CGC) recorded an approval value of MYR 5.922 billion, which is higher than the 2019 approval value (MYR 3.968 billion). This is evidenced by the double-digit growth of 24.4% in the number of SME accounts approved, from 10 827 in 2019 to 13 472 in 2020.

The entrepreneurship development agenda has been given greater importance with the establishment of a dedicated ministry, known as the Ministry of Entrepreneur Development and Cooperatives (MEDAC). Subsequently, the National SME Development Council (NSDC) is now officially known as the National Entrepreneur and SME Development Council (NESDC), with a greater emphasis on entrepreneurship development.

2020 saw SMEs struggling to face the challenges related to the COVID-19 pandemic. The Malaysian Government responded to the coronavirus threat by introducing the PRIHATIN Economic Stimulus Package and PENJANA Recovery Plan, which require SMEs to reassess and rethink the way business is conducted, in line with the “new normal”.

Table 29.1. Scoreboard for Malaysia

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Debt
Outstanding business loans, SMEs	MYR billion	128.0	138.9	141.6	141.2	165.3	187.6	211.0	243.7	274.4	299.8	315.7	320.1	278.4	305.1
Outstanding business loans, total	MYR billion	290.7	328.3	343.1	375.3	422.0	465.1	499.8	545.9	588.1	616.0	623.8	659.4	675.0	680.6
Share of SME outstanding loans	% of total outstanding business loans	44.00	42.30	41.30	37.60	39.17	40.34	42.22	44.64	46.66	48.66	50.60	48.55	41.24	44.82
New business lending, total	MYR billion	163.1	129.0	104.9	141.1	171.4	169.5	178.8	196.4	179.3	178.7	200.0	224.9	237.6	224.7
New business lending, SMEs	MYR billion	63.2	58.9	50.9	62.2	75.2	84.7	78.3	77.7	72.0	74.6	70.7	69.6	71.2	66.8
Share of new SME lending	% of total new lending	38.77	45.70	48.50	44.06	43.90	49.94	43.78	39.57	40.12	41.77	35.33	30.97	29.96	29.71
Share of short-term SME loans outstanding	% of total SME lending	..	..	..	..	..	..	28.73	26.52	24.18	23.61	24.10	23.90	23.83	20.58
Share of long-term SME loans outstanding	% of total SME loans	..	..	..	..	..	..	71.27	73.48	75.82	76.39	75.90
Guarantee and Financing Schemes	No. of accounts (in thousands)	13.00	10.37	14.07	7.67	7.50	2.15	2.37	6.84	8.23	7.57	8.64	8.99	10.8	13.5
Guarantee and Financing Schemes	MYR million	4 567	3 014	3 112	2 495	2 861	1 066	1 546	3 175	3 356	4 224	3 380	3 682	3 968	5 922
Impaired financing, total (amount)	MYR billion	..	20.2	18.1	23.6	21.3	18.4	17.7	17.9	18.9	20.5	20.8	21.4	23.7	23.4
Impaired financing, total	% of all business loans	..	6.16	5.29	6.28	5.05	3.97	3.55	3.27	3.21	3.32	3.33	3.25	3.51	3.44
Impaired financing, SMEs (amount)	MYR billion	..	9.9	8.9	10.6	9.6	8.5	8.2	8.6	8.9	8.9	10.1	10.2	10.3	9.8
Impaired financing, SMEs	% of all SME loans	..	7.12	6.28	7.50	5.78	4.53	3.89	3.51	3.24	2.96	3.19	3.21	3.70	3.21
Interest rate, SMEs	%	..	6.39	5.50	5.69	5.74	5.72	6.06	7.18	7.81	6.60	7.00	7.71	7.86	5.78
Interest rate, large firms	%	..	6.08	5.08	5.00	4.92	4.79	3.79	5.41	5.11	5.06	4.82	4.69	4.30	4.40
Interest rate spread	% points	..	0.31	0.42	0.69	0.82	0.94	2.28	1.77	2.69	1.54	2.17	3.03	3.56	1.38
Collateral, SMEs	% of SMEs needing collateral to obtain bank lending	..	..	..	..	..	..	49.11	51.85	46.08	41.56	43.58	47.49	46.00	51.77
Non-bank finance
Total investment as at end of the period	MYR billion	1.78	1.93	2.59	3.39	3.59	2.76	3.43	3.25	2.22	2.92	2.45	3.11	2.96
Total investment as at end of the period	%, Year-on-year growth rate	53.90	8.13	34.06	31.05	5.81	23.12	24.52	5.45	31.58	31.61	16.05	26.99	-4.98
Leasing and Factoring	MYR million	..	..	..	..	721	918	1 099	1 170	1 086	834	1 280

Note: Malaysia uses the term "Impaired financing" instead of “non-performing loans” and “Total investment as at end of the period” instead of “Venture and growth capital”

Source: see Table 29.4.

SMEs in the national economy

The crucial role of small and medium sized enterprises (SMEs) in the economic growth of Malaysia is undisputed considering that they make up 97.2% of business establishments and contribute 38.2% to Gross Domestic Product (GDP) in 2020. In total, 1,151,399 business establishments are defined as SMEs and they employ 48% of the country’s workforce in 2020. A majority of SMEs operate in the services sector (85.5%), followed by construction (7.4%), manufacturing (5.1%), agriculture (1.7%), and the remaining 0.3% are found in the mining and quarrying sector.

Table 29.2. Distribution of SMEs in Malaysia by size, 2020

Size	Number of Establishments	% share
Microenterprises	903,174	78.4
Small	229,876	20.0
Medium	18,289	1.6
Total	1,151,399	100

Source: 2020 Profile of SMEs, Department of Statistics Malaysia (DOSM)

SME lending

Financial institutions (FIs), which comprise banking institutions (BIs) and development financial institutions (DFIs), continue to represent the main source of external funding for companies.

The key role played by the banking system for SME financing was reflected in the 9.6% growth in outstanding SME loans in 2020 (MYR 305.1 billion, from MYR 278.4 billion in 2019). The share of SME lending in total business lending increased to 44.8% in 2020, from 41.2% in 2019.

In contrast to that, new SME lending has been declining in recent years, after peaking at MYR 77.7 billion in 2014. It gradually reduced to MYR 66.8 billion in 2020.

FIs play an important role in meeting the long-term financing needs of SMEs, as short-term loans accounted for only 20.58% of all SME outstanding loans in 2020. SMEs need long-term financing generally for assets and projects, while short-term financing is typically used for working capital and day-to-day expenses.

Apart from commercial banks, the government also assist microenterprises by providing micro credit financing through agencies such as TEKUN Nasional (TEKUN) and Amanah Ikhtiar Malaysia (AIM). Microenterprises are eligible for micro credit financing up to MYR50,000.

Alternative sources of SME financing

Malaysian SMEs continued to have access to an extensive range of financing sources to address their needs at every stage of their business cycle. With the emergence of new types of innovative business activities, the traditional forms of financing are found increasingly to be inadequate. To address the unique requirements of business, Securities Commission Malaysia (SC) has facilitated the development of alternative financing platforms that connect issuers with traditionally untapped pools of investors through cheaper, faster and more convenient delivery channels. There are arrays of alternative financing from non-banking avenues such as venture capital (VC), equity crowdfunding (ECF) and peer-to-peer (P2P) lending.

Venture Capital and Private Equity

The total number of registered corporations stood at 127 as of 31 December 2020. The venture capital segment accounted for 106 registered corporations (VCMC and VCC), while the private equity segment consisted of 21 registered corporations (PEMC and PEC).

Total committed funds in the industry as at the end of 2020 stood at MYR 7.39 billion and MYR 4.31 billion for private equity and venture capital respectively, with a combined total of MYR11.70 billion. For private equity, commitments are sourced largely from corporate investors (31.52%), individuals and family offices (17.14%) and fund-of-funds and other asset managers (13.12%).

For venture capital, government agencies and investment companies (41.77%), sovereign wealth funds (33.35%) and corporate investors (20.59%) make up the top 3 sources of funding.

VC investments in 2020 concentrated on early stage (50.50%) and growth (38.89%) segments respectively while PE investments were primarily channelled to growth (69.75%) followed by turnaround or restructuring (16.17%) and early stage (12.97%) opportunities. In total, 108 VC and 9 PE deals respectively were recorded in 2020.

Equity Crowdfunding

In 2020 alone, the total capital raised grew by 457% to MYR 127.73 million, from MYR 22.92 million in 2019. A total of 78 issuers have successfully fundraised via 80 campaigns, with 2 issuers fundraising twice within 2020. Majority of issuers are based in Kuala Lumpur or Selangor and 60% are technology-focused issuers.

Campaign size in 2020 has shifted towards larger fundraising amounts, with 84% of campaigns raised beyond MYR 500 000 mark.

In 2020, the number of campaigns for Seed funding reduced to 36% from 61% in 2019. Majority of the capital raised from successful campaigns in 2020 was for business expansion.

Peer-To-Peer Financing

In 2020, the total capital raised grew by 20% to MYR 503.31 million, from MYR 418.64 million in 2019. A total of 1,325 issuers have successfully fundraised via 7,760 campaigns in 2020, reflecting a 6% decrease in total number of issuers and a 39% increase in total number of successful campaigns from 2019. A total of 63% issuers are based in Kuala Lumpur or Selangor and 36% are technology-focused issuers.

In terms of distribution of fundraising amount, majority of campaigns (74%) has successfully fundraised MYR 50 000 and below in 2020. A majority (77%) of the campaigns in 2020 involved shorter-term financing, with tenures of 3 months or less. Capital raised from successful campaigns in 2020 was mainly for working capital.

Government policy response

National Entrepreneur and SME Development Council (NESDC)

The National SME Development Council (NSDC) was established in 2004 to act as the highest policy-making authority to drive the national development agenda for SMEs across all sectors of the economy. However, with increasing emphasis being made on entrepreneur development as well, the NSDC was officially re-named as the National Entrepreneur and SME Development Council (NESDC) on April 2019.

Since its establishment 16 years ago, the Council has made significant progress in driving the SME development agenda through the adoption of a comprehensive and coordinated approach in implementing SME-centric initiatives and programmes. One of the most significant outcomes is the steady increase in SME contribution to GDP, rising from MYR 206 billion in 2004 to MYR 512.8 billion in 2020.

Among the achievements are the adoption of a standard definition for SMEs, establishment of an SME database, monitoring and analysis of SME performance to facilitate policy formulation, a streamlined dissemination of information on SMEs, development of SME financial infrastructure, and the formulation of the SME Masterplan (2012 - 2020).

COVID-19 Economic Stimulus Packages

In 2020, the Malaysian Government announced four (4) economic stimulus packages worth MYR 305 billion to ensure the well-being of the people as well as the survival of businesses that have been adversely affected by the subsequent containment measures. The packages are the MYR 250 billion PRIHATIN Rakyat Economic Package (PRIHATIN), the MYR 10 billion Additional PRIHATIN Package for SMEs, MYR 35 billion National Economic Recovery Plan (PENJANA) and MYR 10 billion Kita Prihatin package. Total government allocation under different stimulus packages to support businesses are MYR 117.8 billion.

The economic initiatives introduced under the stimulus packages aimed at addressing critical pandemic-related issues faced by businesses, especially SMEs, such as financing, cost of doing business and easing cash flow challenges, job retention, human capital development, infrastructure development and adoption of technology and digitalisation.

Some of the key financing initiatives under these stimulus packages are:

• A MYR 5billion Special Relief Facility (SRF) for SMEs at a reduced interest rate from 3.75% to 3.5%. Bank Negara Malaysia (BNM), subsequently upsized the SRF to MYR 10 billion due to overwhelming demand from SMEs;

• A MYR 6.8 billion All Economic Sector Facility (AES) to SMEs by BNM with lowered interest rate from 8% to 7%;

• A MYR 700 million Micro Credit Scheme by Bank Simpanan Nasional (BSN) including a MYR 500 million additional allocation under PRIHATIN to provide soft loans with a 2% interest rate and without collateral for microenterprises. Subsequently under PRIHATIN SME Plus, the 2% interest rate was abolished to 0% and financing amount increased from MYR 50 000 to MYR 75 000;

• A MYR 200 million Micro Credit Scheme with a maximum loan amount of MYR 10 000 per company at 0% interest rate by TEKUN Nasional;

• A MYR 2.1 billion PRIHATIN Special Grant to provide a special grant of MYR 3 000 for eligible microenterprises;

• A MYR 2 billion PENJANA SME Financing scheme to assist SMEs to sustain their business operations;

• MYR 1 billion PENJANA Tourism Financing to finance transformation initiatives by SMEs in the tourism sector to remain viable and competitive in the new normal;

• MYR 400 million PENJANA Micro financing to support micro enterprises through funding programmes

• MYR 500 million PENJANA Bumiputera Relief Financing to ensure sustainability of Shariah compliant Bumiputera entrepreneurs; and

• Allowing SMEs with less than four years of operations to apply for financing from the BizMula-i and BizWanita-i schemes under Credit Guarantee Malaysia Berhad (CGC).

MyAssist MSME

MyAssist MSME is an online one-stop business advisory platform, to assist SMEs in their business-related problems and issues through the provision of business advisory and information, digital marketing opportunities and guidance, technology and business innovation support facilitation, business matching services, and various channels of online initiatives that are linked to implementing agencies under National Economic Recovery Plan (PENJANA).

PENJANA is the short-term economic recovery plan, which was announced by the Prime Minister of Malaysia, YAB Tan Sri Tan Sri Muhyiddin Yassin on 5^th June 2020.  PENJANA is launched as an effort to mitigate the impact of the COVID-19 global pandemic on the Small and Medium Enterprises (SMEs), as well as to revive Malaysia’s economic growth. MyAssist MSME includes four main components, namely the SMEs information centre, advisory services, business matching and business expos.

The platform also includes financial assistance initiatives namely imSME, the first SME loan / financing referral platform that was launched by CGC on 9 February 2018. The initiative leverages on digitalisation to match the financing needs of micro, small and medium enterprises (MSMEs) with suitable financial institutions. The outcome has been positive, with the online platform helping to reduce customers’ turnaround time and resources spent in searching for suitable financing. The platform has a Financial Advisory (FA) Team to guide unsuccessful applicants to improve their prospects in future financing applications.

From its inception and up to 30 September 2020, imSME has cumulatively received 1.9 million visitors, an average of 2,000 per day, and garnered over 32,900 MSME registrations. A total of 2,800 applications amounting to RM288.83 million in financing were approved. The outcome is in line with the objective of CGC to make imSME ‘the Marketplace for MSMEs’.

ImSME continues to record impressive performance in assisting MSMEs to source financing or loan products. The financing sources currently on imSME platform comprise 25 financial institutions, Islamic financial institutions and development financial institutions which are offering 40 financing and loan products, eight P2P financiers and lenders, three equity crowd funders, one grant provider and three capacity building agencies.

Figure 29.1. Trends in SME and entrepreneurship finance in Malaysia

Source: see Table 29.3

Statlink

Table 29.3. Definitions and sources of indicators for Malaysia's scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	**SME loans from financial institutions, amount outstanding as at end period using the national SME definition	Central Bank of Malaysia, "Supply-side data" from Financial Institutions Statistical System (FISS) and Development Financial Institutions Statistical System (DFISS)
Outstanding business loans, total	Business loans from financial institutions to all non-financial enterprises, outstanding amount as at end period	Central Bank of Malaysia, "Supply-side data" from Financial Institutions Statistical System (FISS) and Development Financial Institutions Statistical System (DFISS)
Share of SME outstanding loans	SME loans from financial institutions as a percentage of total business loans	Central Bank of Malaysia, "Supply-side data" from Financial Institutions Statistical System (FISS) and Development Financial Institutions Statistical System (DFISS)
New business lending, total	Business loans approved by financial institutions to all non-financial enterprises during the period	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
New business lending, SMEs	SME loans approved by financial institutions during the period using the national SME definition	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Share of new SME lending	SME loans approved as a percentage of total business loans approved	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Share of short-term SME loans outstanding	SME loans up to one year maturity; outstanding amount	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Share of long-term SME loans outstanding	SME loans with more than one year maturity; outstanding amount	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Guarantee and Financing Schemes	Guaranteed and financing schemes (approved amount)	Credit Guarantee Corporation Malaysia Berhad (CGC)
Impaired business loans, total	Loan is classified as impaired: Where the principal or interest or both of the loans is past due for more than 90 days or 3 months. In the case of revolving facilities (e.g. overdraft facilities), the facility shall be classified as impaired where the outstanding amount has remained in excess of the approved limit for a period of more than 90 days or 3 months; or Where the amount is past due or the outstanding amount has been in excess of the approved limit for 90 days or 3 months or less, the loan exhibits weaknesses in accordance with the banking institution’s credit risk grading framework; or When the loans is classified as rescheduled and restructured in CCRIS.	Central Bank of Malaysia, "Supply-side data" from Financial Institutions Statistical System (FISS) and Development Financial Institutions Statistical System (DFISS)
Impaired loans, SMEs	Loan is classified as impaired: Where the principal or interest or both of the loans is past due for more than 90 days or 3 months. In the case of revolving facilities (e.g. overdraft facilities), the facility shall be classified as impaired where the outstanding amount has remained in excess of the approved limit for a period of more than 90 days or 3 months; or Where the amount is past due or the outstanding amount has been in excess of the approved limit for 90 days or 3 months or less, the loan exhibits weaknesses in accordance with the banking institution’s credit risk grading framework; or When the loans is classified as rescheduled and restructured in CCRIS.	Central Bank of Malaysia, "Supply-side data" from Financial Institutions Statistical System (FISS) and Development Financial Institutions Statistical System (DFISS)
Interest rate, SMEs	Average annual interest rate of newly approved term loans; for maturity up to 1 year	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Interest rate, large firms	Average annual interest rate for newly approved loans for the large firms; for maturity up to 1 year	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Interest rate spread	Difference between average annual interest rates of SMEs and large enterprises; for maturity up to 1 year	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Collateral, SMEs	Percentage of SME borrowers with collateral	Central Bank of Malaysia, "Supply-side data" from Borrower Credit Information Data Mart (BCIDM)
Non-bank finance
Total investment as at end of the period	Total investment as at end of the period	Securities Commission Annual Report
Leasing & factoring	Loans outstanding of leasing and factoring to SMEs	Central Bank of Malaysia, "Supply-side data"

References

Central Bank of Malaysia, Annual Report 2020

https://www.bnm.gov.my/documents/20124/3026128/ar2020_en_book.pdf

Credit Guarantee Corporation Malaysia Berhad (CGC), Annual Report 2019

https://www.cgc.com.my/annual-report-2019/img/pdf/CGC_Annual_Report_2019.pdf

Securities Commission Malaysia (SC), Annual Report 2020

https://www.sc.com.my/api/documentms/download.ashx?id=e1c7eb21-53db-4f02-a8f8-55dc09f9ffff

Department of Statistics Malaysia (DOSM) (2016), “Economic Census 2016 - Profile of Small & Medium Enterprise”

SME Corporation Malaysia (SME Corp.) SME Insight 2019/20 Main Report

smecorp.gov.my/images/pdf/2021/LTPKS/BI/Main%20Report/Full%20Report_SME%20Insights%202019.20.pdf

SME Corporation Malaysia (SME Corp.) SME Insight 2019/20 Economic Report

https://www.smecorp.gov.my/images/pdf/2021/LTPKS/BI/Economic%20Report/Full%20Report_Prestasi%20Prospek%20Ekonomi%202019-20.pdf