SME DEVELOPMENT PROGRAMMES UNDER NEW ECONOMIC MODEL AND 10 TH MALAYSIA PLAN by

1. SME DEVELOPMENT PROGRAMMES UNDER NEW ECONOMIC MODEL AND 10TH MALAYSIA PLAN by Czarif Chai Abdullah Manager SME Corp. Malaysia 25 February 2011

2. Contents SMEs in Malaysia Targeted Approach in SME Development SMEs in NEM and RMK10 Initiative for 2011 Way Forward ORC / Business Counselors

3. SMEs are the backbone of the economy • SMEs account for a large proportion of businesses in Malaysia: • - 99.2% of establishments (548,267) • - Majority are micro enterprises, with 5 workers and less Source: Census of Establishments & Enterprises 2005

4. Currently, SMEs are mainly in the services sector • Services: 87% share, largest subsector is distributive trade • Manufacturing: 7% share, mainly in textiles/apparels and F&B industries • Agriculture: 6% share, plantation/horticulture and fishing Plantation and horticulture (65.6%) Fishery and its services activities (20.8%) Poultry farming (7%) Manufacturing(7.2 %) Agriculture(6.2 %) Textiles & Apparels (23.4%) Food & Beverages (15%) Metal & metal products (13%) Services(86.6 %) Wholesale & Retail (55.5%) Restaurant & Hotel (15.2%) Transport & Communication (6.5%) Source: Census of Establishments & Enterprises 2005

5. Performance of SMEs outpaced the overall economy • SME growth outperformed overall economy for the period 2005 – 2009 mainly due to supporting policy initiatives such as: • Establishment of NSDC in 2004; and • Other supportive policies (PEMUDAH, Visit Malaysia Year, Government salary increment, RMK9 projects) GDP Annual Growth (2000 price) GDP & SME Growth

6. Going forward, SMEs are important endogenous source of growth towards building a high income nation

7. Promoting balanced SME development Quantum leap in GDP via innovation & productivity-led growth New Economic Model: Creation of a high-income nation End-game Creating national champions that become regional / international players Reduction in income disparity through support for microenterprise

8. SME policies to be aligned to the NEM

9. Measures related to SMEs • Promote SME growth in innovative & technologically advanced areas • Facilitate timely access to funding • More support & assistance for micro enterprises • Creating regional champions • Creating ecosystem for entrepreneurship & innovation SRI1: Re-energising the private sector SRI2: Developing a quality workforce & reducing dependency on foreign labour • Upgrading of skills through education & training • Reduce dependency on foreign labour through levy system • Building entrepreneurship through initiatives to support micro enterprises & start-ups • Remove market distortions through removal of price controls & subsidies • Social safety net for bottom 40% of households & Transformation Fund for distressed firms SRI3: Creating a competitive domestic economy • Enhance delivery of Government services • Social safety net for bottom 40% of households & Transformation Fund for distressed firms • Use result-based budgeting & strengthen public finance management i.e GST SRI4: Strengthening the public sector

10. Measures related to SMEs • Reduce income disparity by focusing on bottom 40% of households & business owners • Promote equal & fair access to business opportunities including setting up of Equal Opportunities Commission • Social safety net for bottom 40% of households & Transformation Fund for distressed firms SRI5: Transparent and market-friendly affirmative action • Create an eco-system for entrepreneurship through easing of entry/exit of firms & revamping seed & VC funds for budding entrepreneurs • Promote environment for innovation through incentives funding and establishment of innovation lending institutions SRI6: Building knowledge base and infrastructure • E&E - focus on new niche areas i.e. R&D and design • Agriculture - high value activities i.e. large scale, high yields & new technologies • Services – promote new areas i.e. education, tourism (medical tourism, edu-tourism & eco- tourism), Islamic finance, green technology, biotechnology & creative industries • Support innovative SMEs by changing credit assessment from conventional lending to partial guarantees SRI7: Enhancing sources of growth SRI8: Ensuring sustainability of growth • Support green technology investment through VC funds • Credit assessment by banks for green investment using non-collateral based criteria

11. … and RMK10 focuses on unlocking growth potential of SMEs Developing SMEs as the Engine of Growth and Innovation Support SMEs at early stage & those that have potential to become global players Encourage collaboration between foreign and local SMEs, particularly in modern technology • Access to Financing • RM3 bil for Working Capital Guarantee Scheme of which half for Bumiputera entrepreneurs • RM500 mil Mudharabah Innovation Fund • RM150 mil Business Growth Fund • Increase financial resources of SME Bank & Agro Bank • Adequate financial allocation to SME Corp. Malaysia • AIM and TEKUN micro-credit facilities for estate workers • Green Lane for Procurement • For SMEs that have penetrated international markets, obtained recognition in terms of quality & innovation. • Bumiputera Development Agenda: New Approach • Areas of equity & property ownership, skills & entrepreneurship, • A high-level Council • Skills Upgrading • Expand the scope of the HRDF and SME Corp. grants • Skills training for school drop-outs • Enhancement of technical education and vocational training • RM500 million for Skills Development Fund Corp. • Social Justice Policy • Raise the income and quality of life of the bottom 40% household • Reduce price controls and subsidies in stages • Labour Market Efficiency • Talent Corporation • Streamline foreign worker employment policy 11

12. SMEs to venture into untapped areas with high multiplier effect that raise productivity levels • High value added natural resources downstream activities • Development of indigenous technology • Corridors • Eco-tourism • Green technology • Alternative energy generation • Commercial agriculture • Integrated Tourism • E&E (high value add segments, shared services, partnership) • Islamic Finance 12

13. Emphasis would be to promote areas with high growth potential under NKEAs Innovation Creativity Skilled labour force 13

14. Sectoral focus in creating an advantageous business ecosystem Focus Opportunities Initiatives Services Manufacturing Agriculture

15. INITIATIVES FOR 2011

16. SME Corp will continue to develop SMEs as the engine of growth & innovation… Programmes to be implemented in 2011 • BAP* (for SMEs) and E² (for micro enterprises) - Programme-based approach to develop dynamic, competitive & resilient SMEs • SCORE – as tool to identify capable companies • 1- InnoCERT Programme – promote and support the development of innovative SMEs • The National Mark for Malaysian Brand - to increase awareness on the importance of branding • Skills Upgrading – provides training to enhance the skills and capabilities of employees of SMEs • Soft Loan for SMEs – existing programme, channelled through MIDF • Bridging Financing Promote development of competitive and resilient SMEs in all sectors towards increasing SME contribution to the economy * To be implemented in collaboration with SME Bank

17. Programme-based Approach Reduced funding for grant & loan from average RM239 m / year (RMK9) to RM125 m / year (RMK 10) Large numbers and high expectations of SMEs & Stakeholders Capacity building is still very much required Programme-based approach BAP E² DYNAMIC, COMPETITIVE & RESILIENT SMEs

18. Programme-based approach (cont.) Diagnose and identify strengths & weaknesses of SMEs Business advisory and recommend action plan to SMEs BAP Capacity building E² Provide and facilitate financial support In collaboration with Bank Rakyat In collaboration with SME Bank

19. Conclusion Towards producing national, regional and global champions Vision 19

20. One Referral Centre (ORC) Enquiries Advisory Brand (Flagship) Single Point of Contact 20

21. One Referral Centre (ORC) Towards producing national, regional and global champions 21

22. One Referral Centre (ORC) Towards producing national, regional and global champions 22

23. One Referral Centre (ORC) Towards producing national, regional and global champions 23

24. SME Business Counsellor BUSINESS COUNSELLORS Provide business advisory & counselling to SMEs through effective coordination and business support, focusing on 5 areas Management Production Marketing Financial Human Resource DYNAMIC, COMPETITIVE & RESILIENT SMEs 24

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