23 May 2013
SECTION 2:The infrastructure to support the
development and expansion of foreign economic activities of Kazakhstani SMEs
VI ASTANA ECONOMIC FORUMKazakhstan
Development Financing of SMEs – The Malaysian Experience
by
Mohamad Sabir Mohamad SabriSME BANK MALAYSIA
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
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
Unique Individual Mandate
DFI MANDATE
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
Government’s Agenda – 10MP and ETP SME Growth vs. GDP Growth (2001-2011)
In efforts to promote Malaysia as a high-income
nation by 2020, the Government targets to
grow SME industry’s contribution to the nation’s
GDP to 41% in 2020.
33% 33% 34% 35% 36% 37% 38% 38% 39% 40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total SME contribution to GDP (2011-2020)
SME Bank will provide funding
assistance to businesses that are in
the Development and Growth
stage
5.1
6.0e
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
Government’s Agenda - SME Master Plan (2012-2020)
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 AreasStrategic Goals
7
SME Bank Malaysia – Vision and Mission
To Be A Full-Fledged Specialised Financial Institution To Nurture Small Medium Industry Enterprise For Nation Building To Support
Government’s Economic Agenda In Developing SMEs As An Engine Of Growth
&
8
Shareholding and Reporting Structure
MOF Inc. Central Bank of MalaysiaMITI
SME Bank Malaysia
SupervisingMinistry
Shareholder100% owned
RegulatorUnder DFIA
2002
SME Financing• Manufacturing sector• Services sector• Construction sector
• Authorized Capital RM5.0 billion
• Paid up Capital RM1.35 billion
9
Main Roles – Integrated Approach
MEDIUMMEDIUMSMALLSMALLMICROMICRO
Small Medium Enterprises (SMEs)
DevelopmentBanking
High Impact Developmental Program ThroughSynergized 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
Islamic
Business Model
Outcome Driven SMEs EcosystemTarget Market
Need Based SMEs
Merit Based SMEs
Program-Managed Lending (PML)BUSINESS MODEL TO SUPPORT GROWTHNurturing & Intervention Product Terms Risk Parameters
Source of Funds Pricing
MERITBased
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
Government Fund
SME 1SME 1
SME 2SME 2
SME 3SME 3
SME 4SME 4
NEED Based
SME 5SME 5
SME 6SME 6
Desired Outcomes:
Sustainability,Development
Impact
Desired Outcomes:
Sustainability,Development
Impact
Market FundMarket Fund
Financing and Intervention; Partnership
Financing and Intervention; Partnership
Cash Flow and Development
Strength
Cash Flow and Development
Strength
Risk and Financial Strength
Risk and Financial Strength
11
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
• 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
WORKING CAPITAL
14
Entrepreneur Premise Program
25 Complexes/434 Lots
Financing Facilities
Matching Grant for
Technical & Training
Advisory Services
Entrepreneurship Training
15
Entrepreneurial Training
Islamic
SME Bank’s 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 Bank’s role in the area of human capital
development i.e. providing capacity building & capabilities enhancement for SMEs
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
Government’s 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
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 Government’s development agenda ; and
Balance set of skills to enhance understanding of both Banking & Business capability
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