BY YB TUAN LIM GUAN ENG
MINISTER OF FINANCE MALAYSIA
FOCUS GROUP MEETING FOR 2020 BUDGET
IMPROVING ACCESS TO FINANCING THROUGH FINANCIAL INNOVATION
26 AUGUST 2019
AT SECURITIES COMMISSION, BUKIT KIARA
YBhg. Datuk Syed Zaid Albar
Securities Commission Malaysia Chairman
Yang Berusaha Adnan Zaylani Mohamad Zahid
Bank Negara Malaysia Assistant Governor
Ladies and gentlemen
Good afternoon and Salam Harapan
1. Following the 2020 Budget Consultation on 27 June 2019 at the Ministry of Finance, we are convening a series of 12 focus group meetings with pertinent stakeholders comprising Government agencies, the industry, academia and NGOs. These focus group meetings are intendedto gather views and recommendations on specific topics to be translated into measures and strategies for the 2020 Budget, which will be tabled in Parliament on 11 October 2019.
2. This is the first time the Ministry of Finance has adopted a more collaborative budget preparation process. Whereas previously the MOF organised all focus group discussions alone, this time around we are working with other ministries to come up with a more inclusive budget. The first focus group was held with cooperation from the Ministry of Communications and Multimedia meeting more than 100 tech companies in Cyberjaya. The second discussion was held together with the Ministry of Housing and Local Government. Last Saturday, we had another discussion in collaboration with the Ministry of Energy, Science, Technology, Environment and Climate Change.
3. Today is the 4th focus group discussion where we will be discussing about improving access to financing via innovation, particularly for theSmall & Medium Enterprises (SMEs). I would like to thank both the Securities Commission and Bank Negara Malaysia for hosting this discussion today.
THE IMPORTANCE OF SMES TO THE ECONOMY
4. SMEs play an important role in the Malaysian economy. They contributed to 37% of the Malaysian GDP in 2018 and that figure is projected to rise to 41% by 2020. SMEs comprise about 98.5% of total business establishments in the country, and employ two thirds of all workers in Malaysia.
5. Given its significance, we need to ensure that our SMEs are competitive and remain relevant in the new economy. This is particularly so when our economy is digitalising. The International Data Corporation (IDC) predicts that by 2022, over 21% of Malaysia's GDP will be digitalised against the current level of 18%.
6. The advent of Industry 4.0 (IR 4.0) with new technology such as artificial intelligence, automation and big data are rendering old models obsolete while introducing new way of doing business. Either we adapt completely to IR 4.0 or else those who are unprepared to face it will be left behind.
7. We can assist SMEs and start-ups to make the digitalisation leap by ensuring they have access to the necessary funds to do so. One way to assist them in participating and shaping the digital economy is by improving their access to financing.
ACCESS TO FINANCING FOR SMES
8. In 2019 Budget, the Government has introduced several measures to catalyse the SMEs digitalisation process. This includes guarantee schemes by Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP)where RM2 billion is to ease SMEs financing access to apply IR 4.0technology in its business. This is part of the RM6.5 billion guarantee schemes for SMEs, of which RM1 billion has been reserved for bumiputra SMEs. The Government also provides RM3 billion via the Industry Digitalisation Transformation Fund managed by Bank Pembangunan Malaysia Berhad to accelerate adoption of new technology including artificial intelligence, automation, and big data.
9. However according to the Bank Negara Malaysia (BNM)’s 2018 SME Financing survey, financing access difficulty is ranked as among thetop 10 factors constraining SME growth. Reasons cited include insufficient collateral, lack of documentation, limited cash flow to meet repayment obligations, complex application process and high risk involved in the business venture. This stems from requirements existing in the traditional banking system that takes a conservative approach towards risk.
10. Without even accounting for the various stages of the SME lifecyclewhich may affect financing options available, SMEs find it challenging to secure financing from external sources. As a result, more than 70% of SMEs’ financing needs are sourced internally such as from family members or personal savings, and 30% are derived from financial institutions (FIs) such as banks and microcredit institutions. Although the share of SME loans to total business loans stands 50.2%, the increase in total loans disbursed to SMEs is marginal at 3%, where RM127.4 billion was disbursed for the period of January to May 2019, compared to RM123.4 billion for the same period last year.
11. SMEs need financing not only for operational expenditure but also to strategically grow and develop their value-add in the fast-changing business and technological landscape. According to SME Corp Malaysia, the main reasons for financing are working capital, purchase and renting of machinery, improving or updating production process, and R&D activities.
12. In terms of share of SME financing between financial institutions andcapital markets, approximately 90% of financing is obtained from financial institutions (FIs) while the remainder 10% is from the capital market. Beyond the orthodox banking system, we need to help diversify the financing ecosystem in order to help SMEs obtain funds for growth purposes.
13. Financing from the capital market and innovative platforms such asthe LEAP Market, Equity Crowd Funding (ECF), Peer-to-Peer (P2P), Private Equity and Venture Capital should be further explored as funding options for SMEs and start-ups. With the range of funding that can be obtained via ECF and P2P between RM1,000 and RM 3 million, there arefinancing opportunities for SMEs across all stages of the business cycle.
14. With the rise of fintech, financing solutions are becoming more personalised, accessible and attractive through a wide range of products and services offered at competitive rates. This can be attested by the 900 SMEs successfully raising a total funding of RM344 million through more than 3,400 deals since 2015.
15. As reported by the World Bank in 2018, Malaysians have shown impressive entrepreneurial talent and have even produced some of Southeast Asia’s most recognizable startups such as Grab and Fave. Broader access and opportunities to financing for all provides the foundation for an inclusive and sustainable Malaysian economy.
16. Enhancing the access to financing for SMEs effectively will require a coordinated approach from the public and private sectors. Therefore, I look forward to a fruitful and interactive discussion today across the two sessions on Startups and Early Stage Fundraising and SME Financing.