KUALA LUMPUR: There is virtually no problem for small and medium enterprises (SMEs) to obtain loans from financial institutions.
A survey by Bank Negara Malaysia indicated that most SMEs were able to secure financing with a 94 per cent success rate.
On average, the majority of the applications (89 per cent) was approved within one month and the funds were disbursed within the subsequent month (87per cent).
About 13 per cent of SMEs applied to financial institutions with 91 per cent of their total financing applications approved while the remaining 9 per cent applied to other sources with 99 per cent approval rate.
“Women-owned firms reported higher demand for financing but experience lower approval rate of 83 per cent mainly due to lack of track record and insufficient documentation.
“Most of these firms obtained unsecured financing from microfinance institutions, baking institutions and development financial institutions,” Bank Negara said in its 2018 Annual Report.
The main purposes of the financing applications were for the purchase of assets (building, property, machinery and equipment: 23 per cent), working capital (22 per cent) and starting a new business (19 per cent).
About 44 per cent of these respondents were first-time respondents from the survey carried out by Bank Negara.
SMEs play a critical role in generating income, employment, innovation, and facilitating social cohesion.
With about one million establishments in the country, SMEs contribute 37.1 per cent of the country’s gross domestic product, 66 per cent of employment and 17.3 per cent of exports.
“The positive linkage between entrepreneurship and growth is well established, but a growing body of research focusing on the importance of finance in supporting SME development shows that firms with access to loans grow at a faster rate than those without such access,” Bank Negara said.
As part of the central bank’s functions to promote a sound, progressive and inclusive fi nancial sector, efforts had been directed towards developing a holistic SME financing ecosystem. This included addressing information asymmetry and market imperfections, which are key barriers to finance.
Bank Negara said the majority of Malaysian SMEs were microenterprises (77 per cent) with the bulk of the businesses being concentrated in the services sector (89 per cent). In terms of legal set-up, SMEs mostly operate as sole proprietors (61 per cent).
On financing, respondents reported utilising funds from a variety of sources, both internal and external, with own cash contributions being the main source.
Among other funding sources, about 27 per cent of the respondents had facilities with financial institutions, followed by family and friends, internally-generated funds and microfinance institutions.