Financing for SMEs

Smaller businesses have many avenues to seek funding for growth

SMALL and medium enterprises (SMEs) are broadly defined as manufacturing, manufacturing-related services (MRS) and agro-based industries that employ around 200 full-time employees or have annual sales turnover of not more than RM50mil.

The term also refer to enterprises in the services, primary agriculture and information and communication technology industries with not more than 75 full-time employees or annual sales turnover of not more than RM20mil.

According to the SME Annual Report 2012, small and medium enterprises represent 98.5% of the approximately 78,000 companies in Malaysia, with the remaining 1.5% made up of multinational and public-listed companies.

In many developed nations, SMEs are thought to contribute between 40% and 60% to gross domestic product and 60% and 70% of the employment, but the SME sector in Malaysia has not reached the mark yet.

Deputy Prime Minister Tan Sri Muhyiddin Yassin recently said, “SMEs in Malaysia contribute 31% to the GDP and 59% to employment. The SME sector has a lot of catching up to do as we work towards achieving developed nation status by 2020”.

The Japanese experience

The Japanese experience after World War II underscores the significant role played by SMEs in rebuilding its economy from the brink of collapse to become the second-largest economy in the world for forty-two years before China overtook it in 2010.

Essentially, large enterprises depend on SMEs to supply the goods and services they need on a timely basis so that their own resources are not locked up and they can focus on delivering final products.

For example, car manufacturing companies contract SMEs to supply various auto parts for them to assemble instead of manufacturing the parts themselves.

This way, they can respond to market changes speedily and at minimal cost.

Having realised the significance of SMEs, the government has been making every effort to ensure that the sector continues to flourish in Malaysia.

The biggest obstacle that hampers the growth and progress of SMEs is funding. Owners of these businesses usually start their businesses with their own limited savings or money borrowed from family members and friends.

In the initial years, they have to juggle their finances in order to keep the businesses going.

When the businesses grow, they have to look for additional funding to finance additional machinery, factory or office expansion, inventory and working capital. Those who manage to obtain business loans will continue to progress while others are content to let opportunities slip by.

Fortunately, the Government has realised that SMEs need better funding mechanisms and assistance to optimise their contributions to the economy. Support systems and initiatives to aid the development and growth of SMEs have since been implemented.

A specialised agency was established in 1996 to spur the development of SMEs by providing infrastructure facilities, financial assistance, advisory services, market access and other support programmes. This agency was later transformed into SME Corporation Malaysia.

SME Corp and other government agencies such as Malaysian Industrial Development Finance Bhd (MIDF), the Ministry of International Trade and Industry, the Malaysian Green Technology Corporation and SME Bank provide a range of funding or financial assistance such as soft loans and venture capital funds.

They also offer a variety of grants and incentives to finance product, process and quality improvement, market development, skills upgrading, factory audits and acquisition of strategic technology.

Soft loans at very attractive interest rates of 4% a year are available to SMEs through MIDF to assist existing as well as newly start-up enterprises in project, fixed assets and working capital financing.

The maximum amount for project financing is RM5mil and for working capital financing it is RM3mil.

The minimum amount is RM50,000. New assets including IT hardware and software can be financed for up to 90% of their cost.

SME Bank also gives out business loans and other financing starting from as low as RM20,000 at interest rates ranging from 3.75% to 7.5% a year.

Grabbing opportunities

As any management guru will advise, not progressing is actually retarding. So it is imperative that SMEs stay competitive and innovative and continue to grow their businesses to position themselves alongside their international competitors.

More aggressive SMEs have taken advantage of the funding and assistance provided and some have even ventured into foreign markets.

With the schemes, grants and assistance available, it is up to the SMEs to step out of their comfort zone and create their economic growth as well as contribute towards the Economic Transformation Programme in realising our nation’s aspiration of attaining high-income economy status in 2020.

> Chermaine Poo is a chartered accountant turned actress, TV host and professional emcee. Follow her on social media at, and If you have questions on money matters, send her an email at

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Business , Chermaine Poo , SME funding


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