The government must support MSMEs by creating a low-tax, low-regulation environment and hopefully the new ‘ABCD strategy’ will be the start of that.
Steven Sim developed a powerful reputation in the ministry of human resources as someone who gets things done.
He did it through direct engagement with people on the ground and a focus on pragmatic policy initiatives such as the increase in the minimum wage and structural reforms, including 24-hour insurance coverage for workers and the ground-breaking Gig Economy Act.
His recent media release signals that this confidence and determination will follow him to his new role at the ministry of entrepreneur and cooperatives development — “… on my first day at work as the new minister — no time to waste, no flowery language, no ceremony, no jamuan, just straight to the jugular.”
He announced three decisions within the first hour of his first day at work. First an interest-free loan repayment moratorium from seven agencies in the ministry for micro, small and medium enterprises (MSMEs) and cooperatives affected by flood disasters nationwide.
Second, an increase in microcredit funds for Malaysian MSMEs. Malay, Sabah, and Sarawak Bumiputera allocation rises from RM300 million to RM500 million, Indian MSMEs from RM30 million to RM50 million and a brand new RM50 million microcredit scheme for Chinese MSMEs. This is a total increase of RM270 million in microcredit capital.
Third, he instructed top management to reduce lead-time, costs, and other bureaucratic processes within the ministry to create a more efficient and business-friendly environment.
In addition to these immediate initiatives the ministry will focus attention and resources on four areas in the “ABCD Strategy” — accelerate productivity; bureaucracy reduction; capital accessibility; and develop market access.
Funding for MSMEs and mid-tier companies (MTCs) is generous, with around RM50 billion available in various programmes to support MSMEs. Despite this, take-up is often low, and a fresher approach must ask whether MSMEs actually want this financing in the first place. After all, if they do then it is available.
Might it be that they do not get access because they do not apply? Might it be that they do not apply because the funding programmes are not what they want or need?
Behavioural insights help us to understand why MSMEs might not want external funding. A loan has to be repaid otherwise credit ratings will be downgraded.
Equity finance gives shares to someone outside of the company, resulting in a loss of management control and leading to obligations to third parties. Grants are often specifically for e-commerce, skills-training or green economy investments for example, which most MSMEs do not want or need.
So what is a better approach? Perhaps a programme of active non-interference in MSMEs and business in general?
The RM50 billion can be restructured into a general policy of tax reduction, even zero tax for MSMEs below a reasonable threshold of say RM1 million per year.
The government can also offer unconditional tax relief to help investment of any type chosen by the companies themselves.
Next comes the wage bill assistance such as reforming the Progressive Wage across all companies. There must be cash-flow assistance and changes in policy to require GLCs to pay bills within 30-days. A bonfire of unnecessary and restrictive regulations is also needed.
There are 1.55 million companies registered with the Companies Commission of Malaysia including around 1.2 million micro-enterprises and 320,000 SMEs or MTCs. The RM50 billion can provide tax benefits of around RM30,000 on average to all MSMEs or around RM130,000 per company if targeted to SMEs and MTCs only.
To revitalise MSMEs it might be better if the government simply makes life easier for them by raising tax thresholds, simplifying access to capital, cutting red-tape for permits and regulations and opening more opportunities for government and GLC contracts — a fresher ABCD approach? - FMT
The views expressed are those of the writer and do not necessarily reflect the views of MMKtT.
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