Small and Medium Enterprise (SME) Annual Report 2005
National SME Development Council released an inaugural SME Annual
Report 2005 today. The publication of the report, which will be
released annually, is an important initiative of the Council to enhance
the dissemination of information on SMEs in Malaysia. The report
provides a review on the status and performance of SMEs, as well as
highlights the major programmes undertaken by the Government during the
year in promoting the development of SMEs.
The SME Annual Reports 2005 highlights the following:
A. The Macro Perspective
National Agenda for SME Development
A strong and dynamic SME sector would stimulate the economy and
contribute to achievement of a wide range of economic development
objectives. In recognition of SMEs' substantial contribution to the
economy, the strategies and initiatives to promote SME development
feature prominently in all of the Government's economic development
plans over the years. Over the recent decade, a clear policv for
accelerating the development of SMEs has been charted through specific
strategies outlined in the Second Industrial Master Plan, Third Outline
Perspective Plan and Eight Malaysia Plan.
Broadly, strategies to promote the development of SMEs have been
formulated against the backdrop of a changing and challenging economic
environment. Emphasis was placed on enhancing capacities and
capabilities of SMEs, and enhancing their access to financing. High on
the agenda is to strengthen their competitiveness, mainly through
greater use of technology and upgrading the skills and knowledge of the
workforce.
To further enhance the Government's role, and for greater
coordination and focus in SME development, the National SME Development
Council was established in June 2004. The formation of the Council,
which is chaired by the Prime Minister, represents the Government's
highest commitment in promoting the development of SMEs. The Council
provides the direction for the Government policies to ensure that
sufficient support programmes are in place, and are effectively
coordinated and implemented to assist SMEs.
Status and Performance of SMEs
A nationwide Census on Establishment and Enterprises was conducted
in 2005 on business enterprises in the agriculture, manufacturing and
services sectors. A preliminary assessment based on the 523,132
business establishments that responded to the Census indicated that
99.2% or 518,996 of the business establishments are SMEs, of which
411,849 are micro enterprises.
- Most of the SMEs (86.5% or 449,004) are in the services sector,
mainly engaged in the retail, restaurant, wholesale, transportation and
communication, and professional services businesses. - 37,866 or 7.3% SMEs are in the manufacturing sector, mainly in the
textile and apparel, metal and mineral products, and food and beverages
industries. - 32,126 or 6.2% of SMEs are involved in the agriculture sector,
mostly in food crops, market produce and horticulture, and livestock.
The Census results confirmed that SMEs are a major source of
employment, providing jobs for over 3 million workers or 65.1% of total
employment in these business establishments.
- 2.2 million workers were employed by SMEs in the services sector,
while 740,000 and 131,000 workers were employed in the manufacturing
and agriculture sectors respectively.
In terms of contribution to the economy, SMEs generated RM154
billion or 47.3% of value added and RM405 billion or 43.5% of output in
2003. The Census also showed that 4,257 SMEs exported their goods and
services totaling RM38 billion in 2003. Productivity levels of SMEs are
found to be significantly lower than large enterprises, recording
value-added per establishment of RM0.3 million compared with RM41
million for large enterprises.
Only 2,747 businesses invested in R&D, of which 2,355 are SMEs.
SMEs invested RM2 billion in R&D out of the RM4.3 billion spent in
total by establishments in the Census. Less than 10% of SMEs engaged in
marketing and promotion activities.
The Census also revealed that 84% of the SMEs relied on their own or
internally generated funds and funds sourced from friends and family
members, while 16% sourced their funding from financial institutions.
In contrast, 50% of large enterprises relied on the financial
institutions. Of the 523,132 establishments, 54,011 SMEs indicated
having difficulty obtaining financing from the financial institutions,
mainly due to lack of collateral.
B. Key Initiatives Promoting SME Development
The Government, through various Ministries and Agencies, has
undertaken a lot of initiatives and programmes to support the
development of SMEs. The aim is to promote the development of
competitive and resilient SMEs towards increasing their contributions
to the economy. Towards this end, a holistic and comprehensive approach
is being undertaken, encompassing three broad strategic thrusts,
namely, strengthening enabling infrastructure; building the capacity
and capability of SMEs; and enhancing access to financing.
Strengthening of Infrastructure for SME Development
One of the strategic priorities of the Government is to develop and
strengthen infrastructure that is required to create an enabling
environment to support the growth of SMEs and entrepreneurs.
Initiatives in this aspect encompass developing and enhancing
physical infrastructure and information management, as well as ensuring
regulations and operating requirements are conducive to SME
development. A significant milestone in strengthening the
infrastructure is the introduction of the common definitions for SMEs
in 2005 by the National SME Development Council. The common definitions
will facilitate the collection and compilation of SME data for
assessment and policy formulation. The Council also initiated the
establishment of the National SME Database to address the information
needs of the industry and policy makers. To enhance policy formulation
and monitoring, the Council endorsed the adoption of the SME Policy
Formulation and Evaluation Framework.
The establishment of on-line portals and business directories such
as the SMEinfo portal, FAMAXchange, Agribazaar and HRD Portal (a
training portal), is an important initiative to facilitate and increase
the outreach of information dissemination.
- SMEinfo Portal (www.smeinfo.com.my)
was launched in January 2006 to provide a one-stop information resource
for SMEs. Among the information provided in the Portal is detailed
information on all Government programmes, sources of financing and
advisory services. The Portal also contains an online SME Business
Directory, providing a platform for SMEs to advertise their company and
products. - AgriBazaar (www.agribazaar.com.my)
is an internet system for farmers, producers, retailers and exporters
to interact and conduct their trading on-line. It provides business
information, including data on new supply, supply feedback, price
quotations, logistic services, inventory management, market projections
and payment management. Therefore, SMEs using AgriBazaar will be able
to discover the best prices for their products, gain greater access to
the market, and thus, expand their business.
A major development was the establishment of the National Institute
for Entrepreneurship or ISKEN in January 2005 to create and develop
world-class entrepreneurs. Envisioned as more than a mere training
institute, ISKEN will, in addition to conducting relevant business
training courses, actively provide market data and research to support
entrepreneurs, and provide consultancy services.
Enhancing Capacity and Capability of SMEs
Enhancing the capacity and capability of the SMEs, forms the second
strategic thrust for SME development, in strengthening the
competitiveness and resilience of the SMEs. In order to help SMEs build
capacity and capability, the Government's assistance and programmes
focus on seven broad areas, namely, marketing and promotion; training
and human resource development; advisory services; entrepreneur
development; technology development; product development; and awareness
and outreach.
Marketing and Promotion
The Government provides both financial and non-financial support to
enhance SMEs' marketing and promotion capability, with assistance
extending to cover areas like direct promotional activities, brand and
franchise development, as well as linkages with large companies.
To assist SMEs to expand their market, several programmes are in
place, including the Market Development Grant (a matching grant scheme
to cover expenses in promoting SMEs' products oversees), Industrial
Linkage Programme (a programme to link SMEs with large companies and
multinationals) and Local Market Expansion Programme (to link
Bumiputera ICT companies with GLCs).
An important area is to assist SMEs in branding and packaging of
their products. Key programmes include "Grant for Enhancing Product
Packaging, Design and Labelling Capabilities of SMEs", Brand Promotion
Grant and Malaysia's Best brand for agriculture products.
Training and Human Resource Development
An important initiative to assist SMEs to train their workers and
undertake skills upgrading is the appointment of the Human Resource
Development Berhad (PSMB) to coordinate and oversee training and human
resource development for SMEs. PSMB also manages the Human Resource
Development Fund, and offers several schemes specifically to encourage
SMEs to train their workers. PSMB has also established an HRD Portal
(www.hrdportal.com.my), an on-line training resource centre for
employers, employees and training providers.
Advisory Services
Government agencies provide a wide range of advisory services to
SMEs, generally in the areas of business and financial management, and
technical advisory.
Bank Negara Malaysia offers a comprehensive financial advisory
services to SMEs, through the "Laman Informasi, Nasihat dan Khidmat"
(LINK) as well as a dedicated unit to handle SMEs queries and
complaints. In addition, the Bank also assists SMEs to restructure
their non-performing loans through the Small Debt Resolution Scheme.
SMIDEC offers advisory services to SMEs, including through the SME
Experts Advisory Panel, aimed at providing technical assistance to SMEs
to improve their efficiency, productivity and technological
capabilities.
The Ministry of Science, Technology and Innovations (MOSTI) provides
technical advisory services pertaining to standards and certification,
in view of helping SMEs to meet international standards.
Entrepreneur Development
Government supports for entrepreneurship development takes the form
of programmes designed to provide an infrastructure to make it easier
for entrepreneurs to enter business, inculcate the entrepreneur spirit
and educate potential entrepreneurs.
Key programmes to develop entrepreneurs include the Vendor
Development Programme, Franchise Development Programme and Groom Big
Programme.
There are also several programmes to develop entrepreneurs in ICT,
such as the Start-up Development Programme, Bumiputera ICT Entrepreneur
Development Programme and National Incubation Development Programme.
Technology Development
To facilitate and assist SMEs to improve their operations, the
Government provides both financial and non-financial support programmes
to encourage SMEs to adopt better technology as well as overall process
improvements through the use of specific methods for efficient systems
and business processes.
To facilitate SMEs to upgrade their technological capabilities, the
Ministry of International Trade and Industry (MITI) provides "Grant for
Product and Process Improvement" and "Soft Loan for ICT Adoption". In
addition, the Malaysian Technology Development Corporation (MTDC)
administers the Technology Acquisition Fund.
Product Development
A number of programmes is in place to encourage SMEs to engage in
research and development activities in order to improve the quality of
their products. These programmes include the Enhancement Programme by
SMIDEC, Industry Research and Development Grant Scheme (administered by
MOSTI), and Commercialisation of R&D Fund (by MTDC).
In response to the growing opportunities available for Halal
products, the Government introduced the Grant for Development and
Promotion of Halal Products in 2005. This Grant, administered by
SMIDEC, provides assistance to local companies in preparing, developing
or improving Halal products, as well as in acquiring related
certification and quality standards.
Awareness and Outreach
Multiple channels are used to disseminate information and raise the level of awareness and outreach of Government programmes.
Major exhibitions include:
- SMIDEX 2005;
- Malaysia International Halal Showcase; and
- Gerak Usahawan.
Information portals include:
- SMEinfo Portal (www.smeinfo.com.my
- Training Portal (www.hrdportal.com.my
- Portal Usahawan (www.mecd.gov.my
- Technopreneur Development Portal (www.technopreneurs.net.my).
Recoginition programmes include:
- Enterprise 50 Award; and
- Asia Pacific ICT Awards.
SMEs Access to Financing
A well-developed financial infrastructure that is able to meet the
diverse financing needs of SMEs is essential to support the
competitiveness and continuous growth of SMEs.
Lending Performance to SMEs
SMEs can obtain financing from various types of financial
institutions, including banking institutions, development financial
institutions, leasing and factoring companies, as well as venture
capital companies. To complement the financial institutions, the
Government has also established special funds for SMEs.
The main provider of funds for SMEs is the banking institutions. The
total outstanding SME loans expanded at an annual rate of 6.5% since
2001, to reach RM96 billion or 42.6% of outstanding business loans at
end-2005. Between 2002 – 2005, banking institutions approved an
averaged of RM31.2 billion of financing annually to SMEs, whilst
disbursements averaged at RM86.9 billion annually. In 2005, the banking
system approved RM35.8 billion of financing to more than 85,000 SME
accounts, whilst RM110.7 billion was disbursed to SMEs. In the first
five months of 2006, the banking system approved RM13.5 billion of
financing to about 30,000 SME accounts, whilst RM 48.2 billion was
disbursed. The total outstanding SME loans grew by 12.4% to RM101.7
billion at end-May 2006.
The DFIs that provide financing to SMEs include the SME Bank, EXIM
Bank, MIDF, Bank Pertanian and Bank Pembangunan for high-technology and
ICT companies. In 2005, the DFIs approved RM2.3 billion of financing to
more than 5,000 SME accounts. In the first five months of 2006, the
DFIs approved RM2.3 billion of financing to about 2,300 SME accounts.
As at end-2005, there wre 81 Government funds/financing schemes for
SMEs with a total allocation of RM12.7 billion. Of these 81 funds, 49
were in the form of soft loans, while the remaining were in the forms
of grants (20) and equity financing and venture capital funds (12). In
addition, Bank Negara Malaysia has five special funds for SMEs with a
total allocation of RM11.4 billion.
Major Initiatives to Enhance SMEs' Access to Financing
The major initiatives include:
- establishment of the SME Bank in October 2005;
- transformation of Credit Guarantee Corporation;
- strengthening of Bank Pertanian;
- establishment of the Small Debt Resolution Scheme;
- introduction of two new trade finance products, namely the multi
currency trade finance and indirect exporter financing scheme; and - establishment of two venture capital funds for agriculture sector.
C. Moving Forward – Strategies for SME Development
The National SME Development Blueprint 2006, a one-year action plan
launched in December 2005, outlines the direction for SME development
in 2006. It contains objectives, strategies and targets for SME
development in 2006, key programmes and financial commitments and
Ministries and agencies involved in implementing the programmes. In
2006, a total of 245 key programmes involving RM3.9 billion have been
earmarked for implementation.
In line with the objective of enhancing national competitiveness and
economic resilience, the key priority for SME development outlined in
the Ninth Malaysia Plan (9MP) is to develop competitive and resilient
SMEs that are equipped with strong technical and innovative capacity,
as well as sound business management skills. The Government's SME
development efforts during the 9MP period will focus on strengthening
the capacity and capability of SMEs to enable innovation, production of
high-quality products and services at competitive prices and
integration into international supply chain.
The emphasis for SMEs in the manufacturing and manufacturing-related
services (MRS) sectors is on upscaling and transformation of businesses
into strong knowledge intensive and value creating entities, with an
allocation of RM2.2 billion set aside for this purpose. Initiatives to
further develop the manufacturing and MRS sectors include the setting
up of a Services Sector Development Fund for SMEs to assist potential
entrepreneur to upgrade their technical and professional skills. In
addition, a RM600 million Strategic Investment Fund will be established
to attract quality investment in projects which are knowledge
intensive, labour saving and have high-technology content. For SMEs in
MRS sector, soft loans of RM220 million will also be allocated to
entrepreneurs for the purchase of new machinery and equipment for their
expansion. To support SMEs with the provision of industrial site at
more competitive rate, an allocation of RM927.5 million will be
provided in the form of soft loans to relevant Government authorities.
An allocation of RM833 million will also be provided to build business
premises and office space for SMEs.
For SMEs in agriculture and agro-based sector, efforts will centre
on the development of "New Agriculture", which involves expansion into
large-scale commercial farming, cultivating high quality and
value-added agricultural activities, as well as unlocking the potential
in biotechnology, with an allocation of RM11.4 billion for the 5-year
period. The initiatives to develop agriculture entrepreneurs includes
special training, credit facilities and technical assistance to
Bumiputera agriculture entrepreneur as well as FELDA settlers and
participants of other land development projects.
Given that more than 85% of SMEs in the country are involved in
wholesale and retail trade, concerted efforts will also be made to
provide a comprehensive supporting infrastructure for SMEs in
distributive trade. These include provision of business premises and
related services, as well as strengthening managerial and technical
skills.
National SME Development Council
7 August 2006
