Based on SMECorp definition, for the manufacturing sector, SMEs are defined as firms with sales turnover not exceeding RM50 million or number of full-time employees not exceeding 200. For the services and other sectors, SMEs are defined as firms with sales turnover not exceeding RM20 million or number of full-time employees not exceeding 75. It is reported that SMEs are the biggest contributors to the Malaysian Economy with more than a third of total gross domestic product (GDP) is delivered by these industries. (Ministry of Finance, 2020).
Ever since the pandemic swept into the country and subsequently forcing the government to issue strict lockdown measures to curb the virus spread, businesses of all shapes and sizes have been struggling to regain productivity to levels they enjoyed pre-lockdown. The hard hit SME’s have been raising their arms for attention and the government has duly responded, various incentive packages were rolled out since June and now the biggest budget in Malaysia’s history is about revitalise the sector even further come 2021.
But before we can issue the medicine, lets look at the ailments the SME’s are facing and what the areas need immediate fixing and those for longer term.
- The Ailments
Cash flow became a main issue because of the decrease in sales revenue, lack of cash-in-hand, and of course high overhead costs. According to MoF, nearly 60% of SMEs reported not having any sales during the MCO period, while 39% experienced lower sales. The problem also has caused most of the company problems in paying employees’ salaries and benefit, business loan repayment, and other utilities. As the result of that, more than 90% of SMEs were expected to survive only up to five months with existing cash in hand.
A decline in demand also has become one of the biggest challenges for SMEs especially those who involve in tourism sector, transportation sector, and air transportation subsector. It makes it difficult for SMEs to generate sales revenue which leads to company’s cash flow problem.
On 6th November 2020, our Finance Minister Tengku Zafrul Abdul Aziz presented the profoundly anticipated Budget 2021, which was portrayed as an expansionary budget that will uphold the Malaysians and restore the economy of our country Malaysia. Due to the Covid-19 Pandemic, the budget seems to benefit everyone regardless the economic sectors.
To all entrepreneurs, small and medium enterprises (SMEs), and micro SMEs (MSMEs), this budget will bring them good news and help them boost their businesses especially during the Controlled Movement Order (CMO) period since March 2020 until present which has affected their businesses.
A. Improvements on targeted loan repayment assistance (Bantuan Bayaran Bersasar)
Since last April until September, the government had launched moratorium on repayment. This makes Malaysia the first ever country in the world to implement it. The moratorium on repayment had helped not majority but everyone who was affected by the pandemic.
Once the moratorium ended, the government launched another initiative called Targeted Loan Repayment Assistance starting 1st October 2020. Bank institutions continued offering the advanced moratorium to those who applied. 650,000 applications were received by the bank institution and 98% of the applications were accepted.
The second initiative was announced during the Budget presentation which is the bank institution will improve the Targeted Loan Repayment Assistance by offering the Micro SMEs with loans up to RM 150,000. The loanee will be given two options:
Option 1: The monthly loan repayment can be postponed for 3 months
Option 2: The monthly loan repayment can be reduced 50% for 6 months
This initiative will benefit all SMEs as it will help them to get back on their feet after having hard time to generate revenue stream due to Control Movement Order (CMO) caused by the Coronavirus Pandemic.
B. Financial Assistance for Bumiputera
During the Budget 2021 presentation, our Finance Minister announced that there will be allocation for Bumiputera Entrepreneurs which amounted RM 4.6 Billion for several purposes.
First: RM 510 Million for the purpose of financing the SMEs and MSMEs through PUNB and PUNB
Second: RM 800 Million for the Building Energy Efficiency Project (BEEP) organized by Bank Pembangunan Malaysia & SME Bank.
Third: RM 2 Billion for the purpose of financing the SMEs through SJPP. Due to Covid-19 Pandemic, this allocation has increased from last year’s budget (2020), from RM 1 Billion to RM 2 Billion. This will benefit more Bumiputera in financing their SMEs through the SJPP.
Fourth: RM 1.3 Billion for variety of capacity building programs including professional development and projects.
This financial assistance is provided by the government and bank institutions for Bumiputera to help in terms of developments in various aspects of business.
C. Initiatives made for local entrepreneurs to encourage the making of local products and the consumption of local product among Malaysians
RM 360 Million is being allocated by the Government to encourage the supply of local products and the consumptions of local product. These initiatives will help the SMEs and MSMEs to stabilize their business condition.
RM 25 Million is being apportioned for Micro Franchise Development Program and Affordable Franchise Scheme to help local entrepreneurs who are interested in liaising with local businesses who are in the franchising industry. Other than that, Buy Made in Malaysia Program is also being continued in order to increase the consumption of local products and services.
Apart from that, as many as 100,000 local entrepreneurs will benefit from e-Commerce SME and Micro SME campaign as the government is injecting RM 150 million for this campaign. The fund amounted RM 150 million can also be used for training programs, sales assistance and digital tools.
Another cash injection amounted RM 150 million is also being given by the government to launch the Shop Malaysia Online initiative. The initiative is a collaboration between the government and main e-Commerce platforms to encourage online spending among Malaysians. This initiative will benefit 500,000 local entrepreneurs including halal products and handicraft entrepreneurs.
Lastly, RM 35 Million is provided by the government for the purpose of advertising goods and services produced in Malaysia. This initiative is being done under the Trade and Investment Mission.
D. Business Automation, Digitalisation, and Modernisation
In the previous budget (Budget 2020), the government provided RM 500 million for a period of 5 years to support Geran Padanan Digital and it was limited for the first 100,000 SME who applied for the upgrade of their system.
For budget 2021, the government wants to encourage more automation & modernisation activity among SMEs. Hence, RM 150 Million is being provided under SME Digitalisation Grant Scheme and Automation Scheme to support the automation and modernisation. Other than that, if you’re running a Micro SME or a startup company and have operated for more than 6 months, the eligibility of the grant is more lenient.
According to Association of Small & Medium Enterprises, Singapore (2018), SMEs which have digitalised their businesses saw an increase of 26% in revenue growth on average. Digitalisation helps businesses to understand better their customers, the effectiveness of marketing campaigns, increase the productivity of their business operations, transform products and empower employees.
This is an opportune time for SME’s to transform themselves, with various grants and schemes offered across most Ministries, business owners should not defer their decision much longer and jump on the high speed train of change or end up being left out.
By: Nabil Rosli an astute student from University Sains Islam Malaysia who is keenly observing the state of SMEs and Malaysian economy.
(the content of the article is of the authors own with minor adjustments made for better reading)