SME Malaysia – July 2019

E

ntrepreneurs come in all shapes and sizes, from the hip
fintech startup, or family business on the high street to the
home-based manufacturer using 3D printers and the
power of the Internet to reach new markets.
Their financing needs vary wildly as well. But every
entrepreneur will agree that cash flow is the lifeblood of
any business. SMEs also need cash to fuel their growth—
especially when they are scaling up or exporting to
another market.
Consequently, financing is an important part of the
SME ecosystem.
Traditionally, SMEs have relied heavily on debt
financing, particularly through banks. This has made
SMEs particularly vulnerable to banking system dynamics, with constrained access to financing
arising in times of financial stress. This was starkly illustrated during the financial crisis of
2008-09, where the credit crunch significantly reduced access to capital for SMEs.
Since then, the landscape for SME financing has evolved significantly. Credit availability
for SMEs has recovered, as interest rates have come down, credit conditions have improved,
and payment delays have declined. In recent years, alternative sources of SME finance have
also appeared on the scene: equity instruments, leasing and factoring, non-bank lending, and
even fintech instruments like P2P financing and cryptocurrency offerings.
Despite this, SMEs have substantial structural disadvantages in obtaining financing
compared to large corporations. These structural disadvantages arise mainly from
limitations inherent to the small size and heterogeneous nature of SMEs, which also
undermine the profitability of SME-related market transactions. Such structural limitations
mainly manifest in terms of issuance costs disproportionate to the respective deal sizes, risk
assessment, financial sophistication, reporting capabilities, and communication (particularly
financial transparency). This coincides with financing gaps within the SME population:
micro-enterprises, startups, and innovative ventures are likely to be underfunded despite the
prevalence of venture capital.

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FINANCE-RELATED ISSUES FACING SMEs

DELAYED PAYMENTS

FROM CUSTOMERS

HIGHER INTEREST RATES

FOR BANK LOANS

NEED MORE COLLATERAL

FOR THE SAME FINANCING

SUPPLIERS TIGHTEN

CREDIT ACCESS