Table of Contents

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CONTENTS

Introduction

Definition of SMEs

Internal challenges faced by SMEs

Major sources of financing allocated by Malaysian Government in

order to support SMEs

Conclusion

References

PAGE

Introduction

Small and medium enterprises (SMEs) are companies whose personnel numbers fall
below certain limits. Small enterprises out number large companies by a wide margin and
employ many more people. SMEs are also to be responsible for driving innovation and
competition in many economic sectors.
Previously in Malaysia, there was no standard definition as to what Small and Medium
Enterprises (SMEs). Various agencies and banking institutions define SMEs according to their
own standards.

Objective

This report attempts to discuss the following issues, namely: The various Government
ministries and agencies involved in the SME industry, the incentives that these agencies provide to aid
SMEs, banking institutions that have products specifically for SMEs, potential growth areas of
SMEs and challenges that these SMEs face.

Three Internal Challenges faced by SMEs

Malaysian SMEs face many internal challenges and it is particularly challenging especially for the startup business in Malaysia. The registration fees for companies have been relatively high compare to
registration of business. In addition, the penalties imposed on the SMEs incorporated for non compliance
have been hard the penalty imposed on SMEs incorporated must not be compared with that of the public
listed companies.

1) ACCESS TO FINANCING
a) Skills Upgrading
The Skills Upgrading Programme is aimed at enhancing the skills and capabilities
of employees of SMEs in the technology, industrial design and engineering fields.
Skills upgrading and retraining is vital to enhance the quality of the workforce in
order to increase the efficiency of SMEs and adapting to the dynamic business
environment.
The objective are:
To enhance knowledge the owner the SMEs in managing business
To enhance skills and capabilities employees of SMEs

2) ACCESS HUMAN CAPITAL

3) ACCESS TECHNOLOGY

Three Major Sources of Financing allocated by

Malaysian Government in order to support SMEs

The Government has realised that SMEs need better funding mechanism and
assistance to optimise their contribution to the economy. Support systems and initiatives to aid
the development and growth of SMEs have been implemented.
SMEs can seek financing from various types of financial institutions, including banking
institutions, development financial institutions (DFIs), leasing and factoring companies, as well
as venture capital companies, which provide equity financing. In additional, SMEs can also
make use of various specific-purpose special funds set up by the Government to help SMEs.

1) Banking Institutions

With the development of the domestic bond market, the banking institutions have given
greater focus on loans to SMEs, while the large corporations have shifted to the capital
markets to meet their financing requirements.
a) Established a dedicated unit to deal with SME customers
The role and function of the unit covers a broad spectrum of SME issues ranging
from identifying and structuring appropriate financial requirements to providing
cash management services and other ancillary services such as financial
management and insurance protection.
b) Set up Bumiputra Development Unit
The unit is entrusted with the mandate to address the financing needs and
development of Bumiputra entrepreneurs.
c) Established a Complaints Unit
The unit aims to provide a proper channel for customers, including SMEs, to
raise complaints and serve as the focal point in the banks for managing
complaints.
d) A Client Charter
Banking institutions are required to display a client charter on processing of loans
to SMEs, which should disclose at least the following:
Relevant documents and information to be submitted to the banking
institutions.
Duration taken to process a loan application.
Requirement to inform reasons of rejection to applicants

2) Leasing and Factoring Companies

SMEs had to buy costly equipment needed in their production process, leasing
companies provide them with the option of renting the equipment, thereby avoiding the
need for up-front capital expenditure.
As for the funding of working capital, SMEs now have the choice of pledging their future
income to factoring companies so as to obtain funding for working capital.

3) Development Financial Institutions

Development financial institutions (DFIs) are specialised financial institutions set
up to accelerate the growth of strategic sectors identified by the Government. A
key function of DFIs is to provide financial services that are not being provided by
the banking institutions. The Credit Guarantee Corporation Malaysia Berhad
(CGC) continued its role as Malaysias primary provider of guarantees to enable
SMEs with insufficient collateral to attain financing from banking institutions.

CONCLUSION

From this assignment, we get to know the advantages of SMEs there are various
including the encouragement of entrepreneurship, the greater likelihood that SMEs will utilise
labour intensive technologies and thus have an immediate impact on employment generation.
They also can usually be established rapidly and put into operation to produce quick returns.
SME development can encourage the process of both inter- and intra-regional decentralisation
and they may well become a countervailing force against the economic power of larger
enterprises. More generally the development of SMEs is seen as accelerating the achievement
of wider economic and socio-economic objectives, including poverty alleviation.
Malaysian SMEs play an important role in the Malaysian economy in terms of economic growth
gross domestic product, providing employment skills and non-skills, and knowledge worker,
national revenue direct tax and indirect taxes, and corporate social responsibility.
The success of Malaysian SMEs will depends on an integrated approach of all Malaysians, both
public sectors and private sectors. Any fractional and racial approach is not suitable in these
global competitive economic environment, furthermore it will delay the success of Malaysian
SMEs.
Finally, the Government agencies must not only be efficient, but also be effective in solving
SMEs problems and challenges.

REFERENCES

1) http://www.smeinfo.com.my/index.php?option=com_content&view=article&id=1439&Itemid=816
2) http://www.thestar.com.my/Business/SME/2013/09/27/Financing-for-SMEs/
3) http://en.wikipedia.org/wiki/Small_and_medium_enterprises
4)