1 Focused and Coordinated Development of Small and Medium Enterprises (SMEs): The Malaysian Experience Conference on SME Financing: Issues and Strategies 10 – 11 May 2005 Lahore, Pakistan Presentation by Mr Marzunisham Omar Director, SME Special Unit Central Bank of Malaysia

2  SME Development Framework  Initiatives to Enhance Access to Financing by SMEs  Role of SME Special Unit at Bank Negara Malaysia Presentation Outline

3 Importance of SMEs  Thrust of national economic policy –Strengthen domestic demand –Promote and diversify endogenous sources of growth –Infuse dynamism into economic sectors  SMEs as an impetus for broad-based growth –Provide linkages between various subsectors –Source of dynamism and agility –Indigenous enterprises which may evolve into larger enterprises

4 Status of SMEs  Potential for SMEs to contribute more to domestic economy * For Malaysia, based on SMEs in the manufacturing sector only

5 BNM SME Survey  To assess state of SMEs, their requirements and issues  8,000 SMEs responded  Results: –Low contribution to GDP; –Domestically oriented; –Constrained by capacity; level of technology; access to markets and resources to upgrade skills & production process; and –Financing: 62% indicated no problems obtaining financing Main sources are banks, own capital, and from family and friends

6 Enhance coordination and outreach of SME development across all sectors Enhance access to financing by SMEs Enhance SME’s capacity to compete with focus on quality, management & marketing Build enabling infrastructure to support SME development Comprehensive and Coordinated Approach to SME Development Small & Inward Looking Internal & External Constraints Low Value Add & Less Competitive

7  Inter-Ministry Committee comprising 10 key Ministries and Agencies involved in SME development  Chaired by Governor of Bank Negara Malaysia SME Steering Committee  Formed in Oct 2002 to drive initiatives to strengthen infrastructure for SME development

8 National SME Development Council  Formed on 13 August 2004: –Chaired by Prime Minister –Bank Negara Malaysia appointed as Secretariat  Objectives: –Formulate broad policies and strategies; –Provide direction for comprehensive development of SMEs across all sectors; and –Oversee coordination of and ensure effectiveness in policy implementation

9 National SME Development Council: Initiatives  Definitions for SMEs in various sectors  Establishment of a comprehensive National SME Database  Enhanced Management and Publication of SME Statistics  Coordinated training and human resource development  Access to financing: –SME Bank –Interest subsidy in place of special funds –Securitisation of SME loans

10  SME Development Framework  Initiatives to Enhance Access to Financing by SMEs  Role of SME Special Unit at Bank Negara Malaysia Presentation Outline

11 Initiatives by Bank Negara Malaysia SME Special Funds 5 funds with allocation of RM 8.9b (USD 2.3b), i = 3.75% to 5.00 % Credit Guarantee Corporation Provide guarantee to SMEs lacking collateral and track record ERF Sdn Bhd Special purpose vehicle to assist Bumiputera enterprises Small Debt Resolution Scheme Provide assistance to viable SMEs constrained with NPLs

12 Banking System: Other Services to Enhance SME Financing SME Units Provision of financing and ancillary services to SMEs Bumiputera Development Units Address financing and developmental needs of Bumiputera entrepreneurs Complaints Unit Provide a dedicated channel for customers to raise complaints with banking institutions Display of Client Charter Display a Client Charter on the processing of loans applications: – documents & information required; – eligibility criteria; and – processing time. Banking System: Services for SMEs

13 Banking System: Main Provider of Financing to SMEs  USD8.3 b loans approved to 92,000 SMEs in 2004 –January – March 2005: USD2.1 b loans approved  USD26.4 b loans disbursed in 2004  Loans to SMEs accounted for 40% of outstanding business loans  2/3 of total loans channeled to 3 main sectors –Wholesale and retail trade, restaurants and hotels, manufacturing and construction  NPLs declined to 12% of total SME loans

14 Development Financial Institutions and Venture Capital  Complement role of banks, esp. to finance start-ups  Development Financial Institutions: –In 2004, loans extended by 5 DFIs to SMEs amounted to USD0.8 b  Venture Capital: –Several funds established to promote venture capital industry –VCCs invested mainly in ICT, pharmaceuticals and manufacturing

15  SME Development Framework  Initiatives to Enhance Access to Financing by SMEs  Role of SME Special Unit at Bank Negara Malaysia Presentation Outline

16 SME Special Unit at Bank Negara Malaysia  Established to lead BNM’s efforts to support SMEs  Roles: –Formulate strategies to enhance access to financing –Provide information and advisory services to SMEs –Secretariat of National SME Development Council

17 End of Presentation