KUALA LUMPUR: The World Bank has called on financial institutions to broaden financing options for small and medium enterprises (SMEs) beyond traditional collateral-based methods which may not be adequate to support businesses investing in productivity, technology and innovation.
World Bank country director for the Philippines, Malaysia and Brunei Darussalam Zafer Mustafaoglu said Malaysian SMEs had relatively good access to bank credit but remained heavily reliant on internal funds to finance productive investments.
The 2024 World Bank Enterprise Survey showed that 37.9% of Malaysian firms had a bank loan or credit line, comparable with several high-income economies.
“Malaysia is at the cusp of achieving high-income status. The challenge for its SMEs is to shift to higher productivity, higher technology adoption, intellectual property (IP) creation and innovation,” he said at the launch of the World Bank’s October 2026 Malaysia Economic Monitor yesterday.
“The question is not simply whether SMEs can access credit, but whether the finance available to them actually matches the productive and innovative investment they need to make.”
Despite relatively good access to bank credit, SMEs continued to rely heavily on their own funds, with about two-thirds of fixed-asset investments financed internally, the report found.
The financing gap is also reflected in loan approvals for smaller businesses.
In 2025, the report found the ratio of gross loan amounts approved to applications received stood at 48% for small firms and 54% for medium-sized firms, compared with 74% for large firms.
The report identified three main financing constraints: limited ability among SMEs to pledge movable assets such as equipment and receivables as collateral; difficulties for lenders in assessing businesses without conventional credit histories; and a shortage of financing for higher-risk, longer-term and intangible-intensive investments.
To address these gaps, the World Bank outlined three priorities, starting with completing the movable-asset collateral framework and establishing a unified registry.
This would allow more SMEs to use equipment, receivables and inventory, rather than relying mainly on land and buildings, to secure loans.
It also called for standardised annual reporting on public SME financing programmes, covering their exposure, pricing, losses and outcomes, to provide a clearer picture of how effectively these funds were being used. The third priority was to pilot higher-risk financing instruments, including credit guarantees and risk capital, before expanding them more widely.
Zafer said a broader financing ecosystem was needed to channel funds towards productive businesses without exposing the public sector to risks it was not equipped to manage. “A well-financed, productive SME sector would create better jobs, and a stronger financial ecosystem would drive the next wave of productivity-led growth.”
Adding to the World Bank’s call for more targeted financing, Economy Minister Akmal Nasrullah Mohd Nasir said the focus should be on ensuring existing financing programmes supported investments that could raise productivity. “The report’s most important message for policymakers is a thoughtful one. It does not say ‘spend more’. It says: be precise.”
He said smaller and innovative businesses could struggle to secure suitable financing because their assets were often machinery, equipment, receivables and IP rather than conventional collateral such as land and buildings.
Akmal said Malaysia already had various financing instruments, including credit guarantees through the Credit Guarantee Corp, concessional facilities, development finance institutions and public co-investment mechanisms.
“The next stage is about quality, not just quantity. The question is whether firms can access financing that meets their investment needs and supports higher productivity,” he said.
Therefore, he said SME financing was a key part of Malaysia’s productivity agenda under the 13th Malaysia Plan and the Madani Economy framework.
On the banking side, CIMB Group Holdings Bhd
group commercial banking co-chief executive officer Lawrence Loh said lenders were increasingly looking beyond traditional collateral, including extending financing to businesses that had been operating for less than three years.
He said CIMB is now assessing micro businesses based on their cash flows and working with credit guarantee schemes to extend unsecured loans.
“You could be one year in business, but as long as you have six months of cash flow, I will be able to give you a line, collateral-free,” he said during a panel discussion moderated by World Bank economist Deisigan Shammugam.
Loh said CIMB had extended such loans, which were typically smaller in size but could make a difference to start-ups and newer businesses.
However, financing technology companies with valuable IP but limited cash flow remained challenging, he said.
“It is quite difficult for us to take an IP or technology, for example, to be used as collateral. How do you value that? And when the customer goes down, what do we go for?” he said. “That’s something, from a bank perspective, almost impossible to do.”
Even movable assets such as machinery could pose problems for lenders if there was insufficient infrastructure to verify, value and recover them when borrowers defaulted, he added.
