Empowering Malaysia’s MSMEs – A Case for One-Stop SME Agency

The term SMEs (PKS) were mentioned not less than 5 times in the recent 2025 Budget speech by Prime Minister Datuk Seri Anwar Ibrahim, reiterating the importance that the government places on the sector. However, we would argue that the solution is rather piecemeal, and would not solve the fundamental problem that SMEs face – access to credit funding and coaching.

MSMEs in Malaysia accounted for 97.4% of total businesses and contributing to 48.2% of total employments. However, despite its significance in terms of establishments and employments, MSMEs in Malaysia were reported to have generated only 38.4% to Malaysia’s overall GDP and 10.5% of total exports in 2022. According to official data released by ASEAN, MSMEs contribute to 44.8% GDP regionally. it is obvious that our MSMEs have a lower-than-average GDP contribution compared to our ASEAN peers like Singapore and Indonesia.

Probing further, the glaring differences between MSMEs’ business presence and economic contribution can be attributed to a series of underlying problems which are often neglected. Worse, these inherited shortcomings have then propagated to handicap our MSMEs’ competitiveness and productivity growth.

Fragmentation of MSMEs Initiatives

Access to finance for MSMEs players have always been the utmost priority for all MSME initiatives. Along these years, as various ministries and agencies attempt to catch up with the widening financing gap faced by our MSMEs, there were lacking in efforts to develop an efficient MSME support ecosystem.

According to “Malaysian SME Program Efficiency Review” reported by World Bank in 2022, it was found that MSME support programs in Malaysia are highly fragmented. SME empowerment efforts are delegated to multiple ministries – Ministry of Entrepreneur and Cooperatives Development (MECD), Ministry of Investment, Trade and Industry (MITI), Ministry of Economy (ME), Ministry of Human Resources (KESUMA), Ministry of Rural and Regional Development (MRRD) and several others with designated SME unit set up within the ministries. On the other hands, entities like Bank Negara Malaysia (BNM) also have a specialised SME unit under its jurisdiction.

As reported by World Bank, during year 2019, there were a total of 71 different agencies, ministerial departments and government linked companies oversaw the implementation of MSMEs and entrepreneur support programs across Malaysia! This serious fragmentation is likely to be associated with huge coordination challenges which then hinder efficiency in implementation of our MSME support programs.

Formulating a Single SME Empowerment Agency

Therefore, it is essential to enhance the governance framework to establish a robust central organisation, which can unite the diverse initiatives within a well-coordinated structure.  As such, we strongly suggest the government to continuously empower SME Corp as the apex body for MSME development. Horizontally, SME Corp should be mandated to be the major bridge, aligning government’s MSMEs development objectives and stakeholders’ expectations. Vertically, SME Corp can oversee the MSMs growth in different segment – agriculture, manufacturing, trading, tourism, local services and etc.

In addition, the government should seriously consider merging overlapping MSME programs and initiatives to avoid redundancies, improve transparency and monitoring cost, as well as to optimise resources.

Comprehensive MSME Supports

Apart from unproportionate GDP contribution, the level of productivity of our MSMEs is also significantly lower than in other countries. This can be attributed to lacking in comprehensive support measures within our MSME initiatives.

Based on observation, most of Malaysia’s MSMEs initiatives are mainly focused on providing financial support for general capacity expansion, particularly to obtain fixed assets and working capital. There is a deficit in support measures that address specific needs of MSMEs, for example, research and development (R&D), skills formation, management practices, linkages formation, etc. In other words, there is lack of coaching support for our MSME entrepreneurs to improve their performance and productivity sustainably. As such, an absolute majority of MSME, especially from the micro and small spectrum, remain fragile and continuously face difficulty moving up the scale pyramid.

Therefore, the government must establish a series of focused and integrated hand-holding support measures for our MSME of different scales and stages – through learning from successful and bigger peers. Our MSME must be systematically guided to foster long term sustainable productivity-led growth. Resources must also be allocated to equip our MSME with necessary survival skills and gain its versatility against the harsh and competitive business world.

World Trade Organisation quoted an average of 50% GDP contribution for MSMEs in developed countries. In other words, if Malaysia wants to “graduate” from the middle-income trap, our MSME must first be empowered enough to prosper. To close the 12% GDP-contribution gap between Malaysia’s MSMEs and first world, we need a consolidated single-agency to deploy or direct resources effectively, and a coaching mindset to nurture and empower them, but not spoon-feed.

Recommended Posts