Execution vital for MSME success

THERE are an estimated 1.1 million micro, small and medium enterprises (MSMEs) in our country.

Most of us are aware that they are the pillar supporting the nation’s economy, providing employment and contributing to the country’s tax revenue through corporate income tax, sales and service tax and personal income tax from employee wages.

In fact, I have always believed that one of the most remarkable characteristics of Malaysia’s economy is the large number of MSMEs relative to its population and working adults.

Compared to our regional peers, we have a buoyant MSME economy that not only grows but continues to innovate through the years.

A good indication is the pipeline of companies listing on Bursa Malaysia’s ACE Market.

Many of these firms started as MSMEs before scaling up to achieve listing status.

This points to two obvious conclusions.

One, Malaysia provide an ideal environment that fosters entrepreneurship.

Two, there is room for growth for MSMEs.

As many have given their opinions on the government’s Budget 2025, I shall not comment further.

However, regarding MSMEs, I am particularly interested in the budget allocations and policies aimed at supporting them and would like to explore the details further.

Loan facilities for MSMEsStarting with the big numbers, the recent Budget 2025 allocates almost RM40bil for various initiatives.

At a glance, this figure seems more than sufficient to cater to the 1.1 million MSMEs in the country.

Using a back-of-envelope calculation, if we were to divide the sum among the MSMEs, each entity would be entitled to around RM36,000.

That is quite a neat sum, especially for smaller enterprises.

However, in reality, the RM40bil allocation does not translate to a readily available sum for disbursement.

For instance, RM20bil is allocated to Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP), a company under the Finance Ministry that provides guaranteed financing schemes for MSMEs.

These guarantee schemes essentially provide guarantees to lenders that extend loans to qualifying MSMEs in return for a minimal fee.

In the event an MSME defaults on a loan, SJPP will then compensate the lender, in this case the licensed bank or financial institution.

This scheme is comprehensive and well thought out, as well as useful in helping MSMEs access financing.

Unfortunately, a major hurdle in implementation is that the financial institutions responsible for approving loans are often the same ones making it difficult for MSMEs to qualify.

The banks’ priority is to look after their balance sheet, profitability and non-performing loan ratios.

Logically, with the SJPP scheme in place, they should be able to expedite loan disbursement and enhance access for MSMEs.

However, I’ve spoken to several MSME owners who sought working capital or trade facilities through the SJPP but were denied funding despite having a solid track record, profitability and revenue growth.

They were rejected on the basis that their early years’ retained losses need to be wiped off to meet the positive shareholder equity requirement.

One banker told an MSME business owner, “How about you inject some personal funds into your company to increase the paid up capital, only then you apply for the loan? Once the loan is disbursed, then you can withdraw the excess cash.”

If MSMEs owners had excess personal funds lying around, why would they even need to approach the bank for financing?

Additionally, Bank Negara is allocating a RM3.8bil SME loan fund to support MSMEs.

However, the same problem arises if the intermediaries handling the disbursement are the commercial banks.

If anything, the commercial banks may use the SME loan fund allocation for MSMEs for their preferred customer profiles rather than those truly in need.

This is one of the main reasons our banking stocks consistently report good earnings.

Grant award is like winning lotteryEach year, there are various grant programmes announced in the budget.

One notable initiative is the SME Digital Grant to encourage digitalisation.

However, a friend of mine, who paid RM5,000 to an approved information technology vendor from Malaysia Digital Economy Corp’s list to digitalise his business, never received the grant reimbursement promised three years ago.

Despite following up with both the vendor and the agency, he has received no updates on the reimbursement status.

This year, RM50mil has been allocated under the Madani PMKS Digital Grant.

But it would be beneficial if grant applicants could receive their reimbursements in a timely and transparent manner, along with updates on the processing status.

The amount may not be much, but it goes a long way to catalyse MSMEs (especially older ones) to embark on digital initiatives.

Cradle Fund, under the Science and Technology Ministry, has been allocated RM65mil this year.

Credit must be given to Cradle Fund, one of the top agencies in our country consistently working to support and nurture early-stage, technology-related startups.

Two of its programmes, CIP Spark and CIP Sprint, offer grants of RM150,000 and RM600,000, respectively, to qualifying startups that make it through the pitching and assessment stages.

While such grants are competitive, more budget allocations should be given to the agencies or ministries that are efficient, professional and transparent in assisting MSMEs.

At the very least, agencies or intermediaries disbursing funds to support MSMEs should not be the same institutions profiting from them, thereby avoiding conflicts of interest when making decision.

Novel initiatives to spur growthIt is not easy for policymakers to draft ideas into actionable plans that translate into tangible benefits for the intended beneficiaries.

Many policy ideas start with the best intentions, but end up benefitting the wrong segment or failing to reach the intended parties – in this case, the MSMEs.

Every year, allocations to i-Tekad social finance programme and Bank Simpanan Nasional (BSN) amount to billions.

For 2025, RM3.2bil of microloans will be available.

BSN has performed well over the years, particularly during the pandemic, when it promptly disbursed low-interest microloans to MSMEs.

However, there is only so much they can do.

To truly assist MSMEs, beyond assessing, processing and disbursing funds, more novel ideas could be implemented through digital technology.

This shall be a topic for another day.