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23 May 2013 SECTION 2: The infrastructure to support the development and expansion of foreign economic activities of Kazakhstani SMEs VI ASTANA ECONOMIC.

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Presentation on theme: "23 May 2013 SECTION 2: The infrastructure to support the development and expansion of foreign economic activities of Kazakhstani SMEs VI ASTANA ECONOMIC."— Presentation transcript:

1 23 May 2013 SECTION 2: The infrastructure to support the development and expansion of foreign economic activities of Kazakhstani SMEs VI ASTANA ECONOMIC FORUM Kazakhstan Development Financing of SMEs – The Malaysian Experience by Mohamad Sabir Mohamad Sabri SME BANK MALAYSIA

2 2 Overall Financial Landscape Comprehensive financial landscape for SMEs with diversified sources of financing providers Banking institutions are the main source for SME banking – 90% DFIs are specialized institutions established and funded by the government for strategic sectors

3 3 Perspective of DFIs in Malaysia DFIs are specialised FIs established by the Government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country The strategic sectors include agriculture, small and medium enterprises (SMEs), infrastructure, maritime, export-oriented sector as well as capital-intensive and high-technology industries The are 13 DFIs in the country of which 6 are prescribed under the Development Financial Institutions Act 2002 and supervised by the Central Bank Role and functions in providing focused financial and development support to bolster human CAPITAL development, SOCIO-ECONOMIC AGENDA and economic growth

4 Unique Individual Mandate DFIMANDATE Development Bank of Malaysia ( Bank Pembangunan Malaysia Berhad) Providing financial services focusing on capital intensive industry ie. infrastructure projects, maritime & hi-tech sector SME Bank Malaysia (Bank Perusahaan Kecil & Sederhana Malaysia Berhad) Providing financing and advisory services activities to SMEs involved in manufacturing, services and construction sectors Export-Import Bank of Malaysia Berhad (EXIM) Providing facilities to support exports & imports of goods, services and overseas investments Agro Bank Malaysia (Bank Pertanian Malaysia Berhad ) Providing full range of financial services focusing on agricultural sector Co-operative Bank (Bank Kerjasama Rakyat Malaysia Berhad) Provide financing and accept deposits as well as producing satisfactory dividend for its members (co-operative) National Savings Bank (Bank Simpanan Nasional) To encourage savings, investments and smart financial management among Malaysians to increase quality of life The remaining 7 entities which are not governed by the Central Bank have their own respective specific mandates

5 5 Governments Agenda – 10MP and ETP SME Growth vs. GDP Growth ( ) In efforts to promote Malaysia as a high-income nation by 2020, the Government targets to grow SME industrys contribution to the nations GDP to 41% in SME Bank will provide funding assistance to businesses that are in the Development and Growth stage e

6 6 The Master Plan charts the policy direction of SMEs in all sectors through the year 2020 towards achieving a high income nation in line with the New Economic Model (NEM) Phase I: new SME Development Framework and broad policies and strategies to achieve the NEM goals; Phase II: Master Plan is to look into the specific action plans and the monitoring mechanism Governments Agenda - SME Master Plan ( ) Innovation and technology adoption Access to financing Intensify formalisation Access to market Legal and regulatory environment Infrastructure Human capital and entrepreneurship development Increase business formation Expand number of high growth and innovative firms Raise productivity Focus Areas Strategic Goals

7 SME Bank Malaysia – Vision and Mission 7 To Be A Full-Fledged Specialised Financial Institution To Nurture Small Medium Industry Enterprise For Nation Building To Support Governments Economic Agenda In Developing SMEs As An Engine Of Growth &

8 Shareholding and Reporting Structure 8 MOF Inc. Central Bank of Malaysia MITI SME Bank Malaysia Supervising Ministry Shareholder 100% owned Regulator Under DFIA 2002 SME Financing Manufacturing sector Services sector Construction sector Authorized Capital RM5.0 billion Paid up Capital RM1.35 billion

9 9 Main Roles – Integrated Approach MEDIUM SMALL MICRO Small Medium Enterprises (SMEs) DevelopmentBanking High Impact Developmental Program Through Synergized Approach of Financial Assistance and Intervention Financial assistance serves as enabler for SMEs, as engine of growth, to move up the value chain and create viral effect to the economy Hand-holding approach from the entry point to inculcate business acumen and propel SME business to the next level FINANCING INTERVENTION

10 Industry Focus 10 Islamic

11 Business Model Outcome Driven SMEs Ecosystem Target Market Need Based SMEs Merit Based SMEs Program-Managed Lending (PML) BUSINESS MODEL TO SUPPORT GROWTH Nurturing & Intervention Product Terms Risk Parameters Source of Funds Pricing MERIT Based Desired Outcomes: Development Investment to target, Contribution of Ecosystem in Target Economic Sectors, GDP contribution of SME, Market Share Desired Outcomes: Development Investment to target, Contribution of Ecosystem in Target Economic Sectors, GDP contribution of SME, Market Share Government Fund SME 1 SME 2 SME 3 SME 4 NEED Based SME 5 SME 6 Desired Outcomes: Sustainability, Development Impact Desired Outcomes: Sustainability, Development Impact Market Fund Financing and Intervention; Partnership Cash Flow and Development Strength Risk and Financial Strength 11

12 12 Source of Funding GENERAL GOVERNMENT MARKET From shareholders contribution Internally generated funds Sourced from Government Loans Loans arranged by Government with Domestic or Foreign Fund Providers Sourced from the market – via corporate deposits and/or bond/sukuk issuance

13 Type of Financing 13 Bai Bithaman Ajil Bai Istisna Ijarah Ijarah Thummal Bai Bai Bithaman Ajil Bai Istisna Ijarah Ijarah Thummal Bai Land Building Machineries Equipments Motor Vehicle FIXED ASSET Fixed Revolving Bai Murabahah Bai Dayn Bai Inah Kafalah Bai Murabahah Bai Dayn Bai Inah Kafalah WORKING CAPITAL

14 14 Entrepreneur Premise Program 25 Complexes/434 Lots Financing Facilities Matching Grant for Technical & Training Advisory Services Entrepreneurship Training

15 Entrepreneurial Training 15 Islamic SME Banks Existing Clients Existing/Would-be Entrepreneurs EPC Participants Scope Intensive Training SMEs Performance Enhancement Training Basic Training New Customer Orientation Training Type TRAINING Establishment of Centre for Entrepreneur Development & Research (CEDAR) To support SME Banks role in the area of human capital development i.e. providing capacity building & capabilities enhancement for SMEs

16 16 A Changing Scenario of Development Financing DFIs have been forced to become less dependent as Government face more budgetary constraints and development aid declines To use own financial strength to intermediate between the providers and users of capital To improve Balance Sheet to enhance attractiveness of capital Governments Budgetary Constraint Developmental role or development assistance is often non-recoverable but complements development banking, thus, both functions become mutually reinforcing The functions are bundled together since the skills required for assessing potential investments are similar to those required to address capacity building and other development needs Complementary Function

17 17 On-Going Challenges – Balancing Act DFIs are required to be self sustaining, and must increasingly raise funds independently, with or without government guarantees; Need to pay special attention to the entity rating and adopt prudent risk management policies and practices; DFIs would end up prioritising their financing activities and certain high risk segments of the market would left unserved ; Careful balance must be struck between investments with high returns and less secure or secured but attractive in pursuit of Governments development agenda ; and Balance set of skills to enhance understanding of both Banking & Business capability

18 18 Development Financing – Conclusion For DFI to succeed within the rapidly changing environment, they must meet the challenges for an effective management; Requires sound governance and financial management, flexibility and the ability to balance cost-effective intermediation and risk management with outreach through smart partnerships, capacity building and knowledge management; DFIs need to sufficiently generate income through diversification of income stream which could be used to cross subsidize its developmental role

19 For business. For growth. For life. or contact

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