Study Tour to Malaysia

October,2009

Experiences and

Lessons

1

Objective

• Knowledge sharing with Bank Negara- Malaysia

on improving access to financial services for

SME.

2

3

56% (5.6 million)

99.2% (548,267)

0.8% (4,537)

32%

68%

Contribution to GDP

44% (4.4 million)

Employment Establishments

Potential for Malaysian SMEs to

contribute more

National SMEs Definition

Manufacturing & manufacturing

–

related services Others

Employees Annual Turnover Employees Annual

Turnover

Medium 51 to 150 USD 2.8 mil to

<USD 6.9 mil 20 to 50

USD 278 K to

<USD 1.4 mil

Small 5 to 50 USD 69 K to <

USD 2.8 mil 5 to <19

USD 56 K to

<USD 278 K

4

Bank Negara- Malaysia (BNM)

• Established 1959 under the Central Bank of

Malaysia Act 1958 (Revised -1994)

• It is a statutory body wholly owned by the

Government of Malaysia. The Bank reports to

the Minister of Finance.

5

Bank Negara- Malaysia (BNM)

Cont,

• BNMLINK (Laman Informasi Nasihat dan Khidmat) is

a centralized financial advisory service for the

walk-in visitors including the Small and Medium

Enterprises (SMEs) in the following areas:

o Information on various sources of financing

available to SMEs;

oAssistance in facilitation of the financing

application process;

6

Bank Negara- Malaysia (BNM)

Cont.

oAdvise on SME financial requirements and

problems

oDebt restructuring and rescheduling of

SMEs' non-performing business loans

amounting to $1 million and less through

the "Small Debt Resolution Scheme".

7

BNM- Cont.

The Small Debt Resolution Scheme (SDRS)

• Objective

– To assist viable but financially distressed SMEs, by

rescheduling & restructuring

• Providing a channel for SMEs to get assistance

– Committee established to provide independent

assessments on applications rejected by financial

institutions

8

BNM- Cont. • Danaharta:

It belongs to the government. Its role is to remove NPLs.

It bought out NPLs of all banks against bonds which

helped in reducing the gross NPLs to less than 10 %. It

was completed by 2005.

• Danamodel:

Re-capitalize viable institutions by issuing bonds to the

private sector. As well as the reduction of the structure

reserve requirement from 11% to 4 %.

9

BNM- Cont.

• Corporate Debt Restructuring Committee:

Voluntary debt workout.

• SME special funds:

Provide funds to banks to lend to SMEs at reasonable

rates.

• Domestic banking sector consolidation:

Consolidate fragmented industry.

10

Promoting Role of BNM in the

Development of Effective and

Efficient DFIs

• Functions of DFIs:

− Develop and promote strategic sectors of the economy

( specialized institutions)

− Achieve socio-economic goals

− Complement banking institutions.

11

The 4 strategic thrusts to enhance

access to financing for SMEs

12

Develop New Financing Incentives and Schemes for SMEs

Enhance the Financial Infrastructure

Strengthen the Financial Service Providers

Strengthen Financial Advisory Services

Access to Finance Initiatives of the

Government and BNM

• Develop New Financing Incentives and Schemes

for SMEs:

– Financing Guarantee Schemes for SMEs

– Special Funds for SMEs

– Synthetic Securitisation of SME Loans

– Venture capital funds for Agriculture

13

Access to Finance Initiatives of the

Government and BNM-Cont.

• Enhance the Financial Infrastructure

– Establishment of SME Credit Bureau

– Establishment of the Central Credit Reference

Information System (CCRIS)

– Establishment of Malaysian Cooperative Societies

Commission

– Small Debt Resolution Scheme

14

National SME Development

Council - NSDC

• It was established in June 2004.It is the highest policy

making body to chart SME development. It is chaired by

the Prime Minister with 15 Ministers and 3 Heads of

Agencies. The current secretariat is the SME

Corporation.

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Strengthen Infrastructure

Build SME Capacity

Enhance Access to Financing

Enhance SMEs’

Contribution to GDP

The NSDC is the highest policymaking

body to chart SME development

NSDC’s 3 Strategic Thrusts

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The NSDC has made significant

achievements

Achievements of NSDC

Improved Statistical

Information

Comprehensive Dissemination of

Information

Improved Policy Formulation,

Monitoring and Assessment

Enhanced Access to Financing

Strengthened Capacity and

Capability

17

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Source: Bank Negara Malaysia

Development Financial Institutions

RM14.1 b / USD3.9 b

Banks RM124.8 b/ USD35 b

Special Funds and Schemes by Government

RM9.7 b / USD2.7 b

Factoring and Leasing

RM1.8 b / USD500 m

Venture Capital

RM1.9 b / USD528 m

... mainly because:

• Banks have the largest source of funding

• Banks have the largest network of branches (2,275) & ATMs (6,543)

Banks are the main providers of financing to SMEs ...

Financing Outstanding as at end-December 2008

Role and function of SME Corp. in

the development of SMEs

• Ensure policies and programs are

comprehensive covering SMEs across all

sectors

• Act as a single point of contact with SMEs

• Assess cross cutting areas e.g. marketing,

advisory, financing and human capital

development

19

Role and function of SME Corp. in

the development of SMEs Cont,

• Facilitate sharing of common infrastructure to

minimize duplications and maximize resource

utilization (resource optimization)

• Coordinate and drive dissemination of

information and outreach programs (e.g.

exhibitions, portals, publications)

• Facilitate interface with private sector

20

Developing & Managing Credit

Guarantee Schemes for SMEs

• Credit Guarantee Corporation

It was established to assist SMEs that have no

/inadequate collateral or track record to gain access to

credit facilities from financial institutions

• Shareholders:

– Bank Negara Malaysia - 76.4%

– Commercial Banks - 23.5%

– Financial Development Institutions – 0.1%

21

Credit Guarantee Corporation-

Cont. • CGC offers a wide range of products and services

to enhance SMEs’ ability to obtain financing

• Key Achievements:

– Introduced risk-adjusted pricing structure

– Participated in securitization of SME loans as credit enhancer

– Introduced guarantee scheme for start-ups

– Expanded scope of beneficiaries to include Islamic banks and DFIs

– Introduced equity financing through JV with global fund management company

22

Credit Guarantee Corporation –

Cont.

• Loan Amount and Guarantee Coverage:

Loan amount ranging between $15,000 to

$1million.(applications above $ 600,000 is only

applicable to existing borrowers with at least 2

years good track record with CGC).

23

SME Credit Information and

Ratings

• Strategic alliance between Credit Guarantee

Corporation and Dun & Bradstreet Malaysia and

the association of Banks.

• An initiative by Bank Negara to enhance SMEs

access to finance.

• Commenced operations in July 2008

24

SME Credit Information and

Ratings- Cont.

• Benefits to SMEs

− Access financing on more favorable terms, and obtain

faster decisions on financing applications

− Have financing applications evaluated on a more

balanced and objective basis

− Identify areas for improvement (reports and ratings as

a self-evaluation tool)

− Check financial standing of customers & suppliers

− Decide whether to give better credit terms or accept

their guarantees

25

Role of SME Bank in funding SMEs

business growth needs

• Financing Support:

– Direct lending activities for start-up and working

capital financing.

– Facilitate securitization for SME loans

– Guarantee loans granted by banking institutions to

SMEs.

26

Role of SME Bank in funding SMEs

business growth needs cont,

• Business advisory support:

– Provide ancillary services aimed at nurturing SMEs –

financial, business management, marketing and other

business aspects.

They benefit from internal expertise to provide advisory

services to SMEs.

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Role of SME Bank in funding SMEs

business growth needs- Cont.

• National and Social obligations: – Focus on nurturing the SMEs and creating an

entrepreneurial society.

– SME bank focuses on policy based financing.

– They have special programs for entrepreneurs’ development and guidance on the preparation of financials.

– SME bank applies risk based rates.

28

SME Bank – Cont.

• SME Bank has 5 strategic products:

– SME start –ups: for new businesses, entrepreneurs and start-ups.

– SME professional: for professional businesses and all services.

– SME franchise: for established or differentiated businesses with franchise potential or franchisees.

– SME procurement: for vendor/ contract businesses supporting GLC /MNC supply / procurement chains.

– SME global: for companies with growth or growth potential in the domestic and or export –oriented.

29

Role of Malaysian Deposit

Insurance Corporation

• Administer a deposit insurance system

• Provide insurance against the loss of part or all

of deposits of a financial institution

• Provide incentives for sound risk management in

the financial system

• Promote and contribute to the stability of the

Malaysian financial system

30

Malaysian Deposit Insurance

Corporation – Cont.

Functions:

• Assess and collect premiums or fees from

banks. Each institution is rated and accordingly,

the premium is set.

• Manage the Deposit Insurance Funds

• Undertake resolution of non-viable banks

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Malaysian Deposit Insurance

Corporation – Cont.

• Reimburse depositors should a bank become

insolvent

• Comply with Shariah principles in respect of

Islamic deposits and funds

• Conduct ongoing public awareness and

education initiatives

• Assess the risk inherent in the organization and

control it

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Role of the Financial Mediation

Bureau

• Non-profit organization set up to help settle

disputes between members of financial services

providers and their clients to refer their disputes

for resolution as an alternative to courts. These

disputes may be Banking/Financial related as

well as Insurance and Takaful related.

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Credit Counseling and Debt

Management Agency ( AKPK)

Credit Counseling is set by BNM to provide:

– Financial education

– Credit counseling

– Debt management services.

• It offers one-to-one counseling and advice on

managing finances– from budgeting, money

management and credit related issues to all

individuals, free of charge.

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• Debt Management: Through the Debt

Management Program (DMP), AKPK's helps

individuals resolve financial problems with FIs.

Credit Counseling and Debt

Management Agency ( AKPK)– Cont.

35

• AKPK is regulated by Bank Negara Malaysia,

however, it does not provide loans or financing, and its

DMP is available to all individuals who need

assistance in managing their personal debts should

they meet the following criteria:

– Have a positive source of income after meeting

his/her expenses

– Not under advanced litigation process

– Not bankrupt

– Total debt does not exceed $600,000

Credit Counseling and Debt

Management Agency ( AKPK)– Cont.

36

Facts and Figures

• Malaysia is ranked no. one in the world for Getting

Credit.

• 80 % of the population are bankable

• Banking sector comprises 9 domestic bank( group ) and

13 foreign bank

• Market share of domestic banks amounts to17 %

• 120 / 1 is the ratio of population to entrepreneur

• Average NPLs amounts to around 8 %

• SMEs contribution to total exports amounts to19 %

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Thank You

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