Accelerating Business Growth for SMEs

Accelerating Business Growth for SMEs

by:Dato' Hafsah HashimChief Executive OfficerSME Corp. Malaysia

SADC Development Finance Institutions Network Chief Executives’ Forum

18 June 2015

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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

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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

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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

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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...

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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

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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 √• 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

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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…

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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

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• 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

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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

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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

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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

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-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…

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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

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Breakout Strategy forMicro Enterprises (MEs)

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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

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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)

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1‐INNOCERT

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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

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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)

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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

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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

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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

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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

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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

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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

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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

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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

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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

Accelerating Business Growth for SMEs

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