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News & Events

[ 07-08-2013 ]
Bank Negera to provide leverage for SMEs

KUALA LUMPUR: Hawkers and petty traders who are considered the riskiest segment of small business lending, have the most difficulty in gaining access to financing.

Although there is the Hawkers and Petty Traders Loan Scheme introduced in 1986, the first of Credit Guarantee Corp (CGC) schemes targeted at this business segment to help raise the income levels and employment opportunities among the poorer section of society, not all small and medium enterprises (SMEs) want to borrow money from the official sources.

More than half of the SMEs surveyed in the census of Establishments and Enterprises 2011, used their own money or borrowed from shareholders, friends and relatives to finance operations.

Although these sums of money are relatively small individually, taken that SMEs form the major component of the economy representing 97.3% of business establishments, employing a large section of the population and contributing significantly to gross domestic product (GDP), the source of their funds becomes important.

Catalysing SME Growth

According to the book “Catalysing SME Growth” by CGC which was launched by deputy Bank Negara Malaysia (BNM) governor Muhammad Ibrahim, this is particularly true for micro and small enterprises, with only 16.2% of micro establishments indicating that they relied on financial institutions for financing.

Larger SMEs however are able to raise funds from more conventional sources. “Financial institutions were the main source of financing for medium-sized enterprises,” said Muhammad at the launch of the book.

In overall terms, 20.3% of SMEs received financing from financial institutions which included banks, micro credit and development financial institutions. Other sources accounted for 30% of SME financing and these included grants or financing from government and co-operatives.

Muhammad said BNM has focused its efforts on ensuring that SMEs, at different stages of the business life cycle, have adequate access to financing and measures taken include strengthening the role of financial institutions in providing financing to SMEs and transforming financial service provider such as CGC to meet SME requirements in a dynamic economic environment.

Platform for SMEs
“These measures provide a platform for SMEs to launch their efforts in meeting the challenges in a global economy,” added Muhammad.

The CGC has also worked closely with BNM and the government to provide additional support during prolonged periods of economic downturn to ensure financing channels remained open to SMEs in need of funds.

During the Asian financial crisis in the late 1990s, the government, together with BNM, implemented a series of unconventional measures to stop the economy from further eroding and to enable the economy to recover. The CGC stepped up efforts to ensure the growth of SMEs by assisting the SMEs to have access to financing.

During this period, CGC was severely challenged both in terms of ensuring adequate access to credit for viable SMEs as well as in managing CGCs credit risk in view of the increasing non-performing loans.

CGC MD Datuk Wan Azhar Wan Ahmad said over the years, the corporation has extended its advisory services on financial and business development matters and these initiatives reflect BNM and CGC’s approach in setting the foundation for the financing and development of Malaysian SMEs in the twenty-first century. “The CGC role to help SMEs access to funding will not change, but the methodology will,” said Wan Azhar.

Economic Transformation

As BNM governor Tan Sri Dr Zeti Akhtar Aziz has pointed out, economic transformation is a means to achieve national goals.

Dr Zeti has said in the past that having a well functioning financial system and the right financial policies are essential for effective participation in this new economic and financial environment.

And as SMEs and micro enterprises contribute significantly to GDP, employment and wealth creation, efficient access to finance for them remains critical.