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Accelerating Business Growth for SMEs
by:Dato' Hafsah HashimChief Executive OfficerSME Corp. Malaysia
SADC Development Finance Institutions Network Chief Executives’ Forum
18 June 2015
2
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
3
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
Population of the World
World population has reached 7.05 Billion on December 31, 2012
Source: United Nations Statistics Division, December 2012
50.43%Female
4
16.74%Youth*
*Aged 15 – 24 years old (as defined by UNESCO)
Demographic highlights …
MALAYSIA: 30 million
With a population of merely about 30 million, Malaysia can’t afford to rely on domestic consumption only to achieve high-income nation status by 2020.
Internationalisation is crucial…
MOZAMBIQUE: 25.8 million
5
CHINA:
1.3 bnINDIA:
1.2 bn
INDONESIA: 238 million
USA: 314 million
AFRICA:292 million
Southern African Development Community (SADC) is a upcoming region with great economic potential
15 countries, 295 million people
Low income
Middle income
Economies in different stages of development…
…with diversified propelling factors
Regional GDP country share in SADC, 2013 (%)
Source: World Bank Development Indicators, 20146
World-class enterprise
Lack of information
Lack of conducive business environment
Limited access to markets
Low innovation & technology adoption
Lack of entrepreneurial spirit & management skills
Limited access to finance
SMEs face various challenges in retaining their competitive edge
Inadequate capacity to comply with standards & certification
Overcoming these challenges will benefit SMEs
1 Huge world is flat and borderless
Untapped economic opportunities as region continues to register strong growth
Increasing consumer class in ASEAN (rise of middle class population)
Undertake outsourcing activities and specialisation of production
Relocate and rationalisation of business operations
Employment and business opportunities for service providers
2
3
4
5
6
ECONOMIC GROWTH
EMPLOYMENT CREATION
EMPOWERMENT OF WOMEN & YOUTH
8
Government
Private Sector
• Facilitator• Act as catalyst
• Associations, chambers & NGOs to develop SMEs• Large firms to mentor SMEs• Participation in design & implementation of progs.
SME development a shared responsibility...
9
10
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
Country High-level
Policy Committee
Name Reports to Functions
US √i. US Senate
Committee on Small Business & Entrepreneur-ship
Chair: A SenatorFunction: Standing committee with jurisdiction over Small Business Administration (SBA) & Small Business Investment Act.
Japan √ SME Policy-Making Council
METIMinister
Chair & members: 30 learned individuals appointed by Minister of Economy, Trade and Industry (METI)Functions: Advisory functions to METI and SME Agency
India √ National Board for MSME
Prime Minister of
India
Chair: Minister of MSMESecretariat: Small Industries Development Organization (SIDO)Functions: Review policies and programmesof the Central Government in SME development
Thailand √National SMEs
Promotion Committee
Prime Minister of Thailand
Chair: Prime Minister Members: 12 representatives (at least 6 from private sector and 3 from regional SMEs entrepreneurs)Secretariat: Office of SMEs Promotion (OSMEP)Functions: Deliberation & approval of SME policies
Philippines √ MSME Development Council
President of Philippines
Chair: Department of Trade & Industry (DTI )SecretaryMembers: Public and private sector representativesSecretariat: Bureau of MSME Development (BMSMED)Functions: Coordinate & facilitate national efforts on SMEdevelopment
Most countries have a high-level policy committeefor SME development
11
12
CountrySME
Devp. Act
Name of Act
Content
Definition
SM
EA
gency
High-level C
ouncil
Procure-m
ent
Annual
Report
SM
E
Policies
Masterplan
US √• Small Business Act of July 30, 1953• Small Business Investment Act, 1958 (Act to
establish SBICs)
√ √ √ √ √
UK å Regional Act: Small Business Act for Europe
2008• ‘Think Small First’, policy framework, 2001
√ √
Japan √
• SME Basic Law, 1963 (revised in 1999)• Act on the Organization for SMEs and Regional
Innovation, JAPAN (SMRJ), Independent Administrative Agency
• Act for Establishment of SME Agency
√ √ √ √ √
India √ • MSME Development Act 2006 √ √ √ √
Thailand √ • Small and Medium Enterprises Promotion Act 2000
√ √ √ √ √
Philippines √ • Republic Act (RA) No. 9501 √ √ √ √ √ √ √
…and a SME development legislation
12
Malaysia also has a comprehensive framework to oversee SME development…
• National SME Development Council was set up in 2004
• Chair: Prime Minister of Malaysia• Members: 13 Ministers, Chief Secretary to
Government, Governor of Central Bank & Director General of Economic Planning Unit
SME Definition
SME Macro Statistics
Censuses on SMEs
SME Development Framework
SME Corp. as central coordination agency
Centralisation of training programme & advisoryInformation – Annual Report, SMEIPA, SMEinfo portal
New financial products – microfinance, guaranteeFinancial infrastructure – SME Credit Bureau, Small Debt Restructuring Scheme, transformation of DFIs
SME Masterplan
Significant progress made…
13
18 Malaysia
28
43
110
119
88
111
74
85
127
128
171
184
164
181
131
163
Mauritius
South Africa
Botswana
Seychelles
Namibia
Swaziland
Zambia
Regional Avg.
Mozambique
Lesotho
Tanzania
Madagascar
Malawi
Zimbabwe
Angola
DR Congo
Rank on Ease of Doing Business
Source: Doing Business 2015 Report, World Bank
Days required to start a business
New business density
No. of new limited liability companies
6 2.28 45,441
6 7.4 6,825
19 6.54 217,624
60 12.3 15,447
38 n.a. n.a.
66 0.85 1,157
38 n.a. n.a.
8 1.36 9,682
36 3.3 28,289
13 n.a. n.a.
29 1.49 1,801
26 n.a. n.a.
8 0.05 630
40 0.08 619
90 n.a. n.a.
66 n.a. n.a.
31 0.02 819
There is a lot of room for improvement to create a more conducive business environment in the region
14
• Faster, cheaper & easier business registration will encourage formation of new businesses.
• Rate of business formation reflects level of entrepreneurship.
• Need a constant supply of companies to ensure private sector dynamism.
*
*SADC Region
Doing Business 2014: Malaysia
15
16
Doing Business 2014: Mozambique
Source: Global Entrepreneurship Monitor Report 2014
Selected SADC economies have a high preference for entrepreneurship as a career but only a small number materialise
17
0
10
20
30
40
50
60
70
80
90
Angola Botswana South Africa Malaysia
Entrepreneurship as a good career choice High status to successful entrepreneursFear of failure Entrepreneurial intentionsEarly-stage entrepreneurial activity Established business ownership rate
(%) of population aged 18 - 64
Note: Of the SADC economies, only Angola, Botswana and South Africa were surveyed in 2014
Entrepreneurship in the GEM Economies, 2014
Intentions do not translate to actions
Source: Global Entrepreneurship Monitor Report 2014
Improvements in the ecosystem will promote greater entrepreneurship
18Note: Of the SADC economies, only Angola, Botswana and South Africa were surveyed in 2014
2
2.5
3
3.5
4
Financing forentrepreneurs
Governmentalsupport & policies
Governmentprogrammes
Physical & servicesinfrastructure
Internal marketdynamics
Malaysia
Angola
South Africa
Botswana
Rates in scale 1-5
State of Entrepreneurship Ecosystem, 2014
19
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
-20-
97.3% (645,136) business establishments in the country are SMEs
SMEs cut across all sectors of the economy
90%: Services
5.9%
3%
1%
0.1%
Manufacturing
Construction
Agriculture
Mining & Quarrying
GDP Employment Exports
33.1% 57.5% 19%
SMEs contribution to the economy
Source: Department of Statistics Malaysia and SME Corp. Malaysia
Micro: 77%
Small: 20%
Medium: 3%
SMEs an important contributor to the development in Malaysia
Chambers and Business Associations
SMEs
Ministries & Agencies
Think-tanks & researchers
SMECorp.
Top-down
Bottom-up
Development of SME policy is through public – private advocacy…
21
Source: Department of Statistics, Malaysia
• Malaysian economy expanded at 6.0% in 2014
• Forecasted official GDP growth for 2015 (BNM) is at 4.5-5.5%
Holistic approach to SME development brought positiveresults…
SME growth outperformed overall GDP growth during 2004 – 2010:• NSDC was set up and SME development accorded national agenda • Other supportive policies (improvement in government delivery, higher
domestic demand and tourism, focus on farmers and small contractors)
SME vs Overall GDP Growth
33% of GDP
57% of employment
17% of exportsAnnual Growth, %
8.0 - 9.0
6.0
4.5 - 5.5
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015f
SMEs GDP growth Overall GDP Growth
Year
Source: Department of Statistics, Malaysia
5.5 - 6.0
Approach
Public-privatepartnership
‘Live’ plan
Outcome-based
Innovation and
productivity-led
SME Masterplan takes a new approach in SME development
23
Breakout Strategy forMicro Enterprises (MEs)
24
5 programmes have been identified, targeting MEs across the various stages of the lifecycle …
GrowthStart-up Expansion / GraduationGraduate to
SME
ME lifecycle
Valley of Death
Firm size & turnover
ME lifecycle stages
≤ 5 employees, ≤ RM300,000
turnover
Programmes Targeting MEs across the ME Lifecycle
Awareness and Outreach
StartMEUp P1
GrowME P2
MarketME P3
FastTrackME P4
ME MoneyMatters P5
25
35 initiatives addressing ME specific requirements, anchored by 5 first mover priority initiatives
Awareness and Outreach
Publicly accessible online database
of support resources
Awareness of ME programmes
Extended physical ORC outreach
Success stories on entrepreneurship
Facilitate business registration & licensing
Promote LLPs
Tax relief & tax filing support
Boot camps for new MEs
Extended advisory pool (finance orgs, peer mentoring)
Start‐up kit
Simplify process Provide start‐up support
Productivity toolkits
Productivity & business consultations
Productivity voucher programme
Productivity diagnosis tools
Success stories on inclusive innovation Success stories on ICT
Promote & handhold use of ICT
Bundled ICT tools with e‐payment
Improve operations Leverage on ICT Incentivise productivity
Upskill human capitalTechnical & management
trainings
Holistic ME learning certification programmes
Enhance physical channels
Access to prime locations
Iconic ME retail hub
Access to online markets
Mobile buyer‐seller matching scheme
End‐to‐end ME support programmes
…incentivising performance via voucher, finance, training, etc
Roadmap of relevant programmes by milestone
Dedicated support Results based assistance..Structured fast‐track
programme
Awareness on finance availability & accessibility
Increase NBFIs transparency & standardisation
Insurance backed loans
Drive acceptance of alternative credit reports
Widen collateral options
Raise awareness Institutional support
StartMEUp P1
GrowME P2
MarketME P3
FastTrackME P4
MEMoneyMatters
P5
Online market access Distribution support
Strengthen SDSI & KUD
Bundled logistics package
Private sector led trading company(s)
26
1‐INNOCERT
27
Innovation Certification for Enterprise Rating and
TransformationNATIONAL INNOVATION AGENDA
NATIONAL INNOVATION COUNCIL
JTPIN
Market
Innovation Led
Economy
HumanCapital
Funding
SME &Techno‐preneur
Institution
Technology
Adopted from Korean’s
CERTIFICATION FOR INNOBIZ.
To date, more than 15,000
INNOBIZ certified
Passing mark of 700 and above out of 1000
points considered innovative SMEs
• To identify and certify innovative SMEs and enterprises in Malaysia
Mission
• To foster and support innovative SMEs and enterprises to be global innovative competitive players
Objective
27
The Korean Success Story
Higher Operating Margin( 4.9 times)
More Jobs Creation( 2.9 times) Higher R&D
Investment (3.5 times)
Higher Added Value(4.9 times)
Higher Growth(6.9 times)
28
29
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
Innovation & Technology• Access to national innovation
system• Low commercialisation & R&D • Poor technology uptake
Human Capital Development• Workforce lacks job readiness• Low utilisation of existing
training• Non-competitive rewards &
benefits
Access to Financing• Limited non-banking avenues• Poor creditworthiness• Lack of know-how and
resources
Market Access• Procurement by Govt/LSIs• Information barrier to exports• Limited focus on marketing &
branding• Low bargaining power
Legal & Regulatory Environment• Licensing / permits• Complying to regulations• Legislations disincentivising
formation & growth
Infrastructure • Trade clearance and facilitation
system• Low and infrequent trade
volume
30
Financing is one of the 6 focus areas that is beingaddressed to unleash the growth potential of SMEs
Constraints to Growth
Access to financing is one of the key factorsto promote SMEs growth
As innovative SMEs mature, their financing needs become more similar to other SMEs and debt financing becomes a more important source of external finance
Financing for innovative start‐ups begin with personal savings, family and friends
Financing Lifecycle for SMEs
BNM Special Funds and Guarantee Schemes
Credit Guarantee Schemes
Government Funds and Schemes
Credit Bureau Malaysia
Government Crisis Funds
Venture Capital Companies
Leasing and Factoring
Ar-Rahnu and Pawn Broking
Microfinance Institution
FINANCIAL LANDSCAPE FOR SMEs
BANKING INSTITUTIONS
DEVELOPMENT FINANCIAL
INSTITUTIONS
Malaysia offers various financing channels to SMEs
32
Create more avenues
particularly for start‐ups and innovative SMEs
Reduce the cost of
financing & stimulate innovative
power of SMEs
Effectively using multiple innovative forms
Improve financing support & promote
sustainable SME devlp
…with alternative financing growing rapidly
BIs; USD61.2 bil;
90%
DFIs; 6%
*Govt. Funds /
Schemes; 2%
**VC; 1%
Factoring & Leasing; 1%
FIs being the main source of external financing
Financing Outstanding as at end 2014
Source: Economic Census 2011: Profile of SMEs, Department of Statistics Malaysia (DOSM)
55.9
50.3
14.3
0 10 20 30 40 50 60
Internal Financing (RetainedEarnings, Internally Generated
Funds, etc.)
External Financing (Banks, DFI,etc.)
Borrowings from Friends /Relatives
Source of Financing of SMEs (% share)
Financial Institutions have
735,435 outstanding SME accounts
FIs account for 95.8% of total
financing
Source: BNM, SME Corp. Malaysia and Securities Commission Malaysia
* As at end-2013. Excluding government funds that are channeled through FIs.**As at end-2014
Private Investors Government Loan through SIP
• Limited avenues for early stage financing• VC industry lacks vibrancy; highly dependent on public funds (51%)
• Govt. provide long term capital into licensed investment companies
• Investment companies to provide debt, equity or hybrid investments in promising SMEs
SMEs
Context
RM1 RM 2x matching
debt capital
Characteristics• Debt in addition to equity• Has monitoring & evaluation
• Managers are mainly from industry
35
HIP 3: SME Investment Programme (SIP) is an example of alternative financing for early stage
Market Access
SME Development Framework
GoalsIncrease business formation
Intensifyformalisation
Expand no. of high growth &
innovative firms
Raise productivity
Reliable Database
Monitoring & Evaluation
Effective Coordination
Effective Business Services
Innovation & Technology Adoption
Human Capital Development
Legal & Regulatory Environment
Access to Financing
Infrastructure
Globally competitive SMEs across all sectors that enhance wealth creation and contribute to the social well-being
Vision
Focus Areas
Institutional Support
Action plan: 6 High Impact Programmes and 22 supporting initiatives
... and the example is the SME Masterplan that was built from the consensus of all the stakeholders
36
SME Masterplan
ETP
RTP
GTP
High-income nation
The SME Masterplan charts direction for SMEdevelopment till 2020
National policies
GDP
Employt
Exports
41%
62%
25%
GDP
Employment
Exports
33%
57%
17%
2013
2020
37
38
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
39
SMEs also have to keep abreast with new trends in doing business to remain relevant
DOING BUSINESS DIFFERENTLY:Businesses can benefit by adopting new ways of doing business
World is virtually borderless , hence
necessitating SMEs to adopt ICT & eCommerce
Sustainability by participating in outsourcing and networking
strategies by large companies /
MNCs. Inter-firm networks & linkages for economies of scale
Sectoral & geographical
based SME clusters for
shared resources reduces the costs
Narrowing the Gap
Lets encourage cashless transaction…
…with affordable device cost
40
Industrial Linkages & SME Clusters
Facilitating access to market by integrating SMEs into the supplychain of the large companies
Concentration on high value-add portion of the supply chain…
RETAILMANUFACTURING
INTE
RN
ATIO
NA
LLO
CA
L
41
42
1 • World Population & Economy• World Population & Economy
2 • Role of Government• Role of Government
3 • SME Development in Malaysia• SME Development in Malaysia
4 • Role of Banking Institutions• Role of Banking Institutions
5 • Role of Private Sector• Role of Private Sector
6 • Recommendation for SADC countries• Recommendation for SADC countries
Outline of the presentation
Creation of a focused SME agency
Capacity building programmes cut across from business start-up to export
Encourage industry linkagesacross SADC countries
Access to finance:o Simplify & standardise all SME
loan formso Create special funds for micro-
enterprise, including for women & youth
o Fund innovative firmso Alternative non-banking
financing – Angel Investor, Venture Capital, seed
o Mobile banking
Institute effective monitoring mechanism for all programmes
44
SMECORP STATUS [Ref. No]
SMECORP BORANG [alamat emel]
VIRTUAL SMEINFORMATION CENTREwww.smecorp.gov.my
SMS for SMEs Info& Other Information
Send to 15888
Find us on Facebook SME Corp. Malaysia
THANK YOUwww.smeinfo.com.my
Business Advisory Services (BAS)
INFOLINE1-300-30-6000
One Referral Centre