More than a micro challenge

  • SME
  • Saturday, 05 Jun 2021

Vulnerable businesses: Many micro-enterprises are reliant on daily income.

WITH the country under tighter movement curbs, there are, naturally, concerns if businesses have the capacity to bite another bullet.

Prior to the announcement of the two-week lockdown, which began on June 1, various business groups and chambers had voiced their preference for stricter measures rather than a full lockdown as the latter would have a damaging effect on economic recovery.

But with the number of daily Covid cases reaching new highs in recent weeks, many have accepted the government’s decision to enforce a lockdown.

According to the SME Association of Malaysia, a full lockdown of the economy could lead to 40% of SMEs shuttering their business and two million people potentially losing their jobs. Given that most companies have yet to recover to their pre-pandemic sales and depleted reserves have yet to be restored, many businesses are hanging by a thread.

As such, some economists have warned that there could be more small business closures this time around compared to the fallout of the first movement control order (MCO) last year.

Micro-enterprises are especially vulnerable. Many do not have sufficient savings and are reliant on day-to-day sales.

Maybank Foundation chief executive officer Shahril Azuar Jimin (pic above) notes that the restrictions in movement saw many of the micro-enterprises under its R.I.S.E Programme facing operational disruptions and financial difficulties.

“Many of our persons with disabilities (PWD) participants had shared that due to the movement restriction, they were not able to operate their business and had to rely on their savings to cover their monthly expenses. Some of them even exhausted their savings to sustain their family, ” he shares.

The R.I.S.E Programme is an entrepreneurship mentoring programme funded by Maybank Foundation and implemented by People Systems Consultancy Sdn Bhd (PSC).

PSC executive director Raymond Gabriel says the programme’s participants are made up of 70% PWDs and 30% from the marginalised communities.

Note that over 32,000 SMEs have shuttered from March to September 2020, based on the Entrepreneurship Development and Cooperatives Ministry’s (MEDAC) written reply to the Parliament in November.

Most of these companies were micro SMEs that have annual sales of less than RM300,000 or less than five full-time employees.

According to the ministry’s survey last year, micro entrepreneurs were the most affected by the Covid-19 economic fallout as a majority of them had yet to receive government assistance.

“If you look at last year alone, quite a significant number of SMEs had folded, based on September data. Given the continuous scarring effect from MCO 2.0 and also the MCO 3.0, I believe some of the SMEs, particularly those related to the retail, trading or travel and tourism sectors, are likely to feel the impact from the scarring effect.

“With this continued prolonged pandemic impact, and also continued movement restriction, I believe some of them will continue to struggle under this current scenario, ” Socio Economic Research Centre executive director Lee Heng Guie (pic below) had said earlier.

It is estimated that micro-enterprises make up more than 70% of the over one million SMEs in Malaysia with the majority of them being in the services sector.

Business groups note that there will be 2.8 million informal sector and micro entrepreneurs affected by the reduction in income during the ongoing lockdown. Ensuring their survival is key to making sure that the SME sector is not ravaged by the effects of the pandemic.

Lee urges small businesses to make full use of whatever facilities that have been given by the government under the various economic stimulus packages to sustain themselves during this period.

“The grants may be small, RM2,000 or RM3,000, but that will help a little bit rather than nothing at all, ” he says.

Earlier this week, the Prime Minister also announced another stimulus package, Pemerkasa Plus, totalling RM40bil to assist vulnerable communities and support businesses during the lockdown. Key initiatives for businesses under the package include additional grants to SMEs, further microcredit financing, extended wage subsidy and one-off cash transfers.

While many welcome these assistance, some also note that they may be insufficient to help small businesses weather the lockdown.

In a recent report, research think tank Refsa highlights that microcredit and SME financing makes up the bulk of initiatives to support businesses at over 85% even though there would be presumably little appetite for accessing fresh loans and expanding businesses right now.

“The top priority should be to help SMEs weather forced business closures and the expected drop in demand as well as helping them prepare for a safe reopening after the lockdown – the former is small in scope and the latter is absent, ” it says.

Non-financial support

For sure, cash handouts are very much needed to help micro-entreprises sustain themselves at the moment. But Shahril opines that this needs to also go with other means of support that will help this group of entrepreneurs position themselves in a sustainable way.

“Based on the conversations with the participants, our team of trainers and mentors had noted that many of our participants were clueless on coming up with alternative solutions or how to re-strategise their business model to stay relevant.

“When the MCO was first imposed, many of our participants were caught off-guard by the sudden disruption. The decrease in sales and customers and the inability to adapt and adjust their business led to a low business income, which led them to exhaust their savings to survive.

“They have to learn to adapt as meeting customers face-to-face is no longer feasible, ” he says.

The R.I.S.E Programme helped familiarise participants with using apps, exposed them to digital tools, guided them to onboard and use delivery platforms, social media platforms and e-commerce platforms to market their products and services.

Shahril says these micro-enterprises have since become more accepting of technology, including opening online banking accounts and leveraging tech enablers.

What’s important, he notes, is to focus on transforming mindsets aside from helping them improve their entrepreneurial skills.

Given their size, micro-enterprises rarely invest in upgrading their skillsets or in their analytical capabilities due to the lack of resources, time and talent.

But Shahril says it is important for these small set-ups to also be equipped with the knowledge on customer analysis, innovation, marketing strategy and financial management. This will help small businesses identify new customer bases, rise above the competition and plan ahead in terms of operations and finances.

Reaching the informal sector

Under the Pemerkasa Plus package, the government will add an extra RM500 payout for the Prihatin Special Grant (GKP). This means that almost a million SMEs and micro-enterprises will receive RM1,000 in mid-June and another RM500 will be disbursed in July.

There is also a one-off aid of RM500 to tourist drivers, taxi drivers, bus drivers and e-hailing drivers and an additional allocation of RM1.5bil for a month of Wage Subsidy Programme for all affected sectors.

However, Lee is also concerned that many SMEs may not be able to benefit from these initiatives as they may be informal set-ups that are not registered with the relevant governing bodies.

“They support the economy, but unfortunately, they are not recognised or understood by the authorities. So we need to make them more inclusive so that they can benefit in terms of the finance benefit from the government, ” he says.

He says the government should consider looking into ways to encourage informal employers or employees to join the mainstream economic system.

This will give them access to training opportunities and financial assistance offered by the various agencies.

More importantly, Lee says there is a need to instill confidence in these informal businesses that they stand to benefit by participating in the mainstream system.

While the various stimulus measures may be able to help small businesses in the short-term, policymakers will have to eventually take a longer-term view in providing targeted aid and enhancing frameworks to ensure the sustainability of the micro-enterprise segment to withstand future economic shocks.

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SME , support , recovery , Lee Heng Guie , SERC , Maybank Foundation ,


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