Role of Government in Creating an Enabling FINANCIAL INCLUSION ADVISERS PROGRAMME Kampala, Uganda 26 April 2010 Role of Government in Creating an Enabling Environment for SME and Microenterprise Development The Financial Stability and Payments System Report covers the Bank’s assessment of key risks and trends in the financial system, and potential implications for the effective functioning of the system. The Report also reviews the developments surrounding the transformation of the financial sector and payment systems, as well as key regulatory and supervisory initiatives to strengthen foundations supporting long-term stability. Today’s briefing will cover the Bank’s assessments of conditions and developments in the financial sector, including the broad direction of future policies for the industry. Mrs. V. Vijayaledchumy Director, Central Banking Services Bank Negara Malaysia

OUTLINE OF PRESENTATION Establishment of National SME Development Council (NSDC) and SME Corp Achievements of NSDC and SME Corp Improved policy formulation Improved statistical information Strengthened capacity and capability Comprehensive dissemination of information Enhanced access to financing (covered in next session) Conclusion

Weaknesses in the SME infrastructure prior to 2004 prompted the need to establish a holistic Government approach to develop SMEs, including micro enterprises Weaknesses prior to 2004 Fragmented development efforts Duplication of programmes and roles of Ministries Establishment of the National SME Development Council (NSDC) to drive the SME development agenda Lack of capacity building efforts for SMEs Resulting in banks not lending to SMEs because SMEs were not viable No standard definition of SMEs Efforts to develop SMEs prior to 2004 was fragmented, with involvement of over 12 Ministries and 40 Agencies. No central body was responsible for the coordination and synchronisation of the developmental efforts for SMEs. There was duplication and overlapping of objectives. There was also lack of capacity building efforts for SMEs, resulting in banks not lending to SMEs because SMEs were not viable. There was also no standard definition for SMEs, with agencies adopting different definitions based on their own criteria. Without a standard definition, some SMEs may be excluded from the entire developmental effort. Recognising the important role of SMEs in economic development, the Government established the National SME Development Council (NSDC) in June 2004 to drive the SME development agenda. Difficult to collect data and formulate comprehensive policies 3

The NSDC is the highest policymaking body to chart SME development Description Chaired by Prime Minister Members: 15 Ministers and 3 Heads of Agencies Secretariat: SME Corporation (Previously BNM) Roles Formulate broad policies on SME development Oversee coordination of policy implementation Ensure effectiveness of policy implementation NSDC’s 3 Strategic Thrusts Enhance SMEs’ Contribution to GDP Strengthen Infrastructure Build SME Capacity Enhance Access to Financing The National SME Development Council, chaired by Prime Minister, is the highest policy-making body to chart SME development. It formulates broad policies and strategies aimed at providing an enabling environment for the comprehensive development of SMEs across all sectors. Since the SME development agenda is widely spread across the scope of various stakeholders within the government arena, the Council will form the crucial link to oversee coordination of and ensure effectiveness in policy implementation across the various stakeholder Ministries and implementing Agencies. SME Corporation is currently the Secretariat to the Council. BNM was the Secretariat when the NSDC was established. The Council adopts 3 broad strategic thrusts as the basis for policies formulation and programmes development: Thrust 1: Strengthening the Infrastructure (e.g SME Blueprint, enhancing SMECorp, SMEInfo Portal) Thrust 2: Building the Capacity of SMEs (e.g coordinated training and international marketing, advisory) Thrust 3: Enhancing Access to Financing for SMEs (e.g. transformation of CGC, establishment of SME Bank, Microfinance rollout) The end-game is to enhance SMEs’ contribution to GDP. The establishment of the Council has resulted in a more focused and comprehensive approach to SME development across all sectors and ensured greater synchronisation of efforts among Ministries and Agencies involved in SME development. 4

SME Development Framework 2006 - 2010 Promote development of competitive and resilient SMEs in all sectors towards increasing SME contribution to the economy Economic Socio Economic Developing progressive and resilient Bumiputera SMEs and entrepreneurs Enhancing viability of SMEs across all sectors Promoting development of SMEs in knowledge-based industries Objectives - Key Message: The implementation of SME development programmes is guided by two economic objectives and one socio-economic objective to achieve an ultimate target of “promoting development of competitive and resilient SMEs in all sectors towards increasing their contribution to the economy”. The two (2) Economic objectives are: Enhancing viability of SMEs across all sectors; and Promoting development of SMEs in knowledge based industries. These objectives are aimed at developing viable SMEs in all sectors to ensure the achievement of broad-based and sustainable economic growth. Emphasis is given in promoting knowledge-based SMEs, being one of the key strategies in SME development.   In addition, in line with the aim of the Government to achieve a sustainable and balanced economic growth, socio-economic objective has also been set to develop progressive and resilient Bumiputera SMEs and entrepreneurs. Three objectives are supported by three strategic thrusts, namely: Strengthening Enabling Infrastructure for SME Development; Building Capacity and Capability of SMEs; and Enhancing Access to Financing by SMEs. In addition, NSDC endorsed a set of key macro performance indicators and targets for 2006 – 2010 to provide the direction for the development of SMEs and to monitor SME performance for the next 5 years. The targets are based on data obtained from SME Census on Establishments and Enterprises 2005 (the important key indicators include SMEs’ contribution to GDP, employment and exports). I. Strengthening enabling infrastructure II. Building capacity and capability III. Enhancing access to financing Strategic Thrusts 5

NSDC’s Achievements Achievements of NSDC Improved Policy Formulation, Monitoring and Assessment Enhanced Access to Financing Improved Statistical Information Achievements of NSDC Strengthened Capacity and Capability Comprehensive Dissemination of Information 6

Improved Policy Formulation, Monitoring and Assessment SME CORP. MALAYSIA MINISTRIES AND AGENCIES NSDC Coordinate Policies SMEs Disseminate Information and Research “One-Referral” Information and Advisory PRIVATE SECTOR Secretariat to NSDC 7 7 7

FUNCTIONS OF SME CORP. MALAYSIA To Coordinate Policies Formulation and Programmes Implementation Formulate broad SME policies across all sectors Point of reference for Government Agencies on SME related issues Monitor and evaluate effectiveness of policies and programmes To be ‘One-Stop’ Information and Advisory Services Channel to obtain feedback on SME issues ‘One Referral Centre’ of reference for SMEs To Disseminate Information and Research Liaise with domestic and international organisations to share best practices and relevant programmes on SMEs Manage National SME Database Publish SME related publications and statistics Undertake research on SME environment Secretariat to National SME Development Council (NSDC) Provide support and administrative services to NSDC Ensure decisions from the NSDC are communicated to all relevant stakeholders Notes: The functions is expected to accelerate the development and promotion of SMEs. 8 8 8

ORGANISATION STRUCTURE OF SME CORP. MALAYSIA NSDC MITI Legal Unit Media and Public Relation Unit Secretariat - Project Management Officer - Transformation Management Officer Members of the Corporation Internal Audit Unit CEO Deputy CEO I Coordination & Development Deputy CEO II Implementation Chief Operating Officer Strategic Planning Division Programme Coordination Division Corporate Communication Division Business Development Division Economic Division 12 State Offices Financing and Monitoring Division Information Technology Division Corporate Management Division 9

STATE OFFICES 10 10

NSDC’s Achievements Achievements of NSDC Improved Policy Formulation, Monitoring and Assessment Enhanced Access to Financing Improved Statistical Information Achievements of NSDC Strengthened Capacity and Capability Comprehensive Dissemination of Information 11

DEFINITION OF MICRO, SMALL AND MEDIUM CATEGORY MICRO SMALL MEDIUM Manufacturing, Manufacturing-related services & Agro-based Industries sales turnover < RM250,000 OR full time employees < 5 RM250,000 > sales turnover < RM10 mil. OR 5 > full time employees < 50 RM10 mil. > sales turnover < RM25 mil. OR 51 > full time employees < 150 Services, Primary Agriculture and Information & Communication Technology (ICT) < RM200,000 RM200,000 > sales turnover < RM1 mil. OR 5 > full time employees < 19 RM1 mil. > sales turnover < RM5 mil. OR 20 > full time employees < 50

TOTAL ESTABLISHMENTS BY SIZE 4,537 (0.8%) TOTAL ESTABLISHMENTS BY SIZE 12,610 (2.3%) 100,333 (18.2%) Total establishments = 552,804 No. of SMEs = 548,267 (99.2%) 435,324 (78.7%) MICRO SMALL MEDIUM LARGE Source: Census of Establishments & Enterprises 2005 – Profile of SMEs

DISTRIBUTION OF SMEs BY SECTOR

CONTRIBUTION OF SMEs TO GDP

CONTRIBUTION OF SMEs TO EMPLOYMENT

CONTRIBUTION OF SMEs TO TOTAL EXPORTS

NSDC’s Achievements Achievements of NSDC Improved Policy Formulation, Monitoring and Assessment Enhanced Access to Financing Improved Statistical Information Achievements of NSDC Strengthened Capacity and Capability Comprehensive Dissemination of Information 18

PERFORMANCE OF SME DEVELOPMENT PROGRAMMES

Development Programmes STRENGTHENING ENABLING INFRASTRUCTURE Involves developing and enhancing physical infrastructure and information management, as well as creating conducive regulations and operation requirements for SMEs. Programmes available: Soft Loan Scheme for Programmes available:Factory Relocation – MITI Furniture Promotion Centre – MPIC Provision of Business Premises – MRRD Incubation Centre – MOSTI Urban Development and Growth Centre – MRRD Upgrade basic amenities and relevant infrastructure in kampungs – MOTOUR Landscape Industry Resource Centre – MHLG Halal Park Development – HDC Provision of Marketing infrastructure; Product Packaging Centre (PUSPRO); Distribution Centre; and Agricultural Marketing Centres - MOA

Development Programmes Programmes available: Matching Grant for Business Start-ups - MITI Computer Application in Business – MOE Train and Work Programme - MDTCC Matching Grant for Product and Process Improvement - MITI Quality Palm Oil Seeds Assistance Scheme for Smallholders in Sabah and Sarawak - MPIC Production of Specialty Pepper Programme - MPIC Produk Malaysia Citarasa Kita - MDTCC SME Brand Development Programme - MITI Training Programme for Budget Hotel Operators – MOTOUR Train the Trainer Programme - MOHR TUNAS (Tunjuk Nasihat Sawit) - MPIC Skills Upgrading Programme - MITI Biotechnology Entrepreneur Programme - MOSTI Commercialisation of R&D Fund - MOSTI Bumiputera Manufacturing Incubator - MRRD Franchise Development Promotion Programme – MOF Bumiputera Exporters Development Programme - MITI BUILDING CAPACITY AND CAPABILITY Includes entrepreneurship development, human capital development, marketing and promotion, advisory services, awareness and outreach, technology enhancement as well as product development.

CAPACITY DEVELOPMENT PROGRAMMES BY SME CORP INDUSTRIAL LINKAGE PROGRAMME 2. SKILLS UPGRADING PROGRAMME 3. SME COMPETITIVE RATING FOR ENHANCEMENT (SCORE) 4. ENTERPRISE 50 AWARD PROGRAMME 5. NATIONAL WOMEN ENTREPRENEUR AWARD (NWEA)

SME DEVELOPMENT PROGRAMMES 6. BUMIPUTRA ENTREPRENEUR ENHANCEMENT PROGRAMME ( BEEP) 7. SME – UNIVERSITIY INTERNSHIP PROGRAMME 8. TECHNOLOGY AND INNOVATION PROGRAMME 9. SME EXPERT ADVISORY PANEL (SEAP) 10. OUTREACH PROGRAMMES

24 24

REGIONAL COOPERATION 25

List of MoUs Signed 1. Small Industries & Industrial Parks Organization (ISIPO) 22 June 2006 2. Office of SMEs Promotion (OSMEP) of Thailand 12 July 2006 3. Small Business Corporation (SBC) of the Republic of Korea 16 July 2007 4. Organization for Small & Medium Enterprises and Regional Innovation, Japan (SMRJ) 18 July 2007 5. Syrian Enterprise and Business Center (SEBC) 7 January 2009

SKILLS UPGRADING PROGRAMME (cont..) BEST TRAINING PROVIDERS Sembilan Resources Management (M) Sdn. Bhd. Selangor Human Resource Development Centre (SHRDC) Institute Global Management (IGM) Sarawak Skills Development Centre (PPKS) Terengganu Advanced Technical Institute (TATI) Penang Skills Development Centre (PSDC) International Computer Driving License Preparing Effective Business Proposal Cashflow Management Accounting for SMEs Halal Certification Procedure Malaysia POPULAR COURSES

SME COMPETITIVE RATING FOR ENHANCEMENT (SCORE) Total SCORED - 1,183 SMEs

Implementation Channel (Existing Collaborators) BACKGROUND OF SCORE a comprehensive diagnostic tool to rate and enhance competitiveness of SMEs based on their performances and capabilities. developed in August 2007. What is SCORE? Example of Radar Diagram for 3-Star company Analysis: Weak in financial capability Assistance: Require financial management training Function identify strengths and weaknesses for improvements; and facilitate linkages. Parameter Business Performance Financial Capability Management Capability Production Capability Technical capability Quality System Innovation Characteristics 0 – 2 Stars : Very basic business operation 3 – 5 Stars : Some degree of sophistication and can be groomed for export Implementation Channel (Existing Collaborators) Retail & Distributive Trade (PUNB) Construction (CIDB) ICT (MDeC) Maintenance, Repair & Overhaul (MINDEF) Professional Services (PSDC) 29 29

SCORE PARAMETERS - MANUFACTURING Management Capability SMEs SCORE PARAMETERS - MANUFACTURING Management Capability Business Performance Financial Capability Technical Capability Production Capacity Innovation Quality System Corporate Planning Technology & Innovation Management Human Capital Development IT Adoption Sales Average Growth Export Marketing Customer Satisfaction Current Assets Current Liabilities Gearing Ratio Profit No. of Trained Personnel MTS Ratio Types of Technology Utilised Capital Investment per Employee (CIPE) Factory Automation Level Machine Utilisation Intellectual Property Rights Product & Process Improvement Capability of Products & Process Improvement Activities Practice of Continuous Improvement Product Certification Certification (Basic & Advance Requirement) Awards 30

SCORE PARAMETERS - DISTRIBUTIVE TRADE SMEs Management Capability Business Planning / Strategy Human Capital Development Reward System Job Segregation / Management Structure Business Performance Financial Capability Current Assets & Liabilities Liquidity & Gearing Ratio Creditor's Aging Profitability Operation Management Stock Management Stock Policy Stock Management Sourcing Strategy Marketing Capability Compliance to Requirements Premise Insurance Quality Standards Sales Turnover & Growth Profit Margin Customer Services Business Growth & Expansion Suitability of Location Accessibility Qualification & Staffing Experience ICT Adoption & Utilisation Standard Operating Procedures Promotional Activities Customer Retention Business Value Proposition 31

SCORE RATING - MANUFACTURING No Star Very basic operation, manual process and informal negative average growth; Manual process, Minimal quality management system in place, negative average growth Semi-automated process, Basic certification/ compliance, Minimal activities in product and process improvement, Minimal average growth Extensive automation, Quality management system in place, Product and Process improvement carried, IPR registered, Moderately ready for export compliance certification Fully automated, High potential for export, High investment in Product and Process Improvement, With certification for export e.g. CE Marking, GMP, HACCP Have good branding, packaging, already exporting to other countries, Have compliance to exporting countries certification requirements

SCORE RATING - DISTRIBUTIVE TRADE No Star Very basic operation Financial record not well documented, poor ICT utilisation, poor stock management, low management capability Basic financial record and stock policy, basic level of operation management, minimal compliance to requirement, unstructured marketing activity Adequate management ladder, good implementation of SOP, good stock policy, average utilisation of ICT and good customer relation. Efficient management structure, good stock management, positive business expansion, good financial management and performance, comprehensive marketing plan, good utilisation of ICT Visionary leadership, established brand presence, excellent integrated system, high capability in ICT adoption, excellent compliance to requirement, excellent stock management, outstanding CRM, high business value proposition, excellent marketing strategy and very strong financial capability.

SCORE – 2 STAR FIRM SCORE – 3 STAR FIRM

RECOMMENDATIONS AND ACTION PLAN Current Situation Recommendations Action Plan Company is semi automated, testing level at 23 bar. Result Bottleneck at the end of production. Product & Process Improvement Enhance automation with conveyor. Improve testing through purchase of new water bath tester to 16 bar level. Assistance under Terengganu Enhancement Programme through Matching Grant for Product and Process Improvement. Company has no clear vision & mission. Company need to improve on management skills to acquire better knowledge in management. To take up courses under Skills Upgrading Programme under SMIDEC. Send SEAP expert. Company lack sufficient skilled staff such as QA, Maintenance Engineer, and OSH Officer. Company has to send their staff for courses or recruit.

SME – UNIVERSITIY INTERNSHIP PROGRAMME 36 36

INNOVATION FOR SMEs INITIATIVES TO DEVELOP INNOVATION-LED TECHNOLOGY AND INNOVATION PROGRAMME INITIATIVES TO DEVELOP INNOVATION-LED TECHNOLOGY-DRIVEN SMEs NATIONAL SME INNOVATION FOCAL POINT UNDER IMP3 INNOVATION FOR SMEs STRATEGIC THRUST 4 – SME / TECHNOPRENEUR UNDER JTPIN 37

TECHNOLOGY AND INNOVATION PROGRAMME (Cont) MEMBERS OF THE INNOVATION FOR SME COMMITTEE

TECHNOLOGY AND INNOVATION PROGRAMME (Cont) Technology Database (in collaboration with MASTIC) TECHMART in SMIDEC’s Website - 270 technologies available for commercialisation - 18,413 researchers’ profile available Technology Roadmap - Completed Roadmaps → Electrical & Electronics → ICT → Biotech industry - Work In Progress → Automotive Sector → Plastics & Rubber Wood and wood-based

SME EXPERT ADVISORY PANEL (SEAP) Total Experts : 62 Total SMEs Participated : 59 40 40

NSDC’s Achievements Achievements of NSDC Improved Policy Formulation, Monitoring and Assessment Enhanced Access to Financing Improved Statistical Information Achievements of NSDC Strengthened Capacity and Capability Comprehensive Dissemination of Information 41

Convention, Seminars/Workshops/ Technical Briefings OUTREACH PROGRAMMES Convention, Seminars/Workshops/ Technical Briefings 42 42

Business Advisory Services 43 43

Enquiries through E-mails Note : Officiated during SMIDEX 2003 44 44

Toll Free Line / Info Line (1-300-18-1801) Note : Officiated during SMIDEX 2003. 45 45

Publications 46 46

THE NATIONAL MARK OF MALAYSIAN BRAND The Mark of Quality

Development Programmes ENHANCING ACCESS TO FINANCING Involves the development and strengthening of institutional arrangements to support SME financing needs. Financial assistance is provided based on three stages of business cycles: early stage financing business expansion financing rehabilitation

FINANCIAL ASSISTANCE FOR SMES BUSINESS EXPANSION FINANCING EARLY STAGE FINANCING FINANCIAL ASSISTANCE FOR SMES BUSINESS EXPANSION FINANCING REHABILITATION

Financial Assistance (cont’…) EARLY STAGE FINANCING Examples: • Venture Capital Funds - MOSTI & MAVCAP • Business Effort Group Economic (TEKUN) - MOA • PROSPER, Retail and Graduate PROSPER - PUNB • DAGS Start-up - CGC

Financial Assistance (cont’…) BUSINESS EXPANSION FINANCING • Microfinance Scheme - BNM and participating Financial Institutions • Soft Loans for SMEs - MITI • Japan Bank for International Cooperation (JBIC) United Loan for ICT Fund - MOF • Special Fund for Tourism - MOTOUR • TNB Vendor Financing Programme - MEWC • Pemborong PROSPER - PUNB • Skim PKS - PUNB • Rural Economy Funding Scheme (SPED) - MRRD • Bank Rakyat Business Financing Scheme - MOF • PNS Franchise Financing Scheme - MOF • MARA Business Financing Scheme - MRRD • Co-operative Financing Fund - MDTCC • Rural Economic Assistance - MRRD • Overseas Project Fund – Exim Bank • Multi Currency Trade Finance (MCTF) and Indirect Exporter Financing Scheme (IEFS) – Exim Bank

Financial Assistance (cont’…) REHABILITATION Small Debt Resolution Scheme (SDRS) - BNM and participating financial Institutions

CONCLUSION The Government can play a vital and strategic role in supporting SMEs The roles should focus on capacity and capability development in terms of providing good infrastructure, information, coordination and some financial support The roles should complement private sector and be market friendly in its implementation The Government’s intervention must involved all relevant stakeholders The Government’s intervention can be permanent but must be flexible and responsive to new requirements of the business world 53 53

Thank You FINANCIAL INCLUSION ADVISERS PROGRAMME Role of Government in Creating an Enabling Environment for SME and Microenterprise Development A CPTM SMART PARTNERSHIP INITIATIVE Thank You 54