MSMEs need more help, not more debt

 Lower taxes, less red tape and direct assistance with costs will serve them better than the additional loans.

Last week Prime Minister Anwar Ibrahim made an important social media post recognising the challenges of micro, small and medium-size enterprises (MSMEs).

I am a neighbour of the prime minister and like him I see the same nasi lemak seller who opens at 5am daily. Her stall is on Jalan Sungai Long, next to the Shell station, across the road from Universiti Tunku Abdul Rahman.

Beyond the early hours, she also has to worry about the cost of ingredients, which is rising weekly.

From the workshop owner managing a growing diesel bill to the family business that has served its community for generations, there is a hard decision to make now: Should they stay open?

As the prime minister has noted, when global oil prices rise and costs increase, the impact does not hit the boardroom of multinationals first. It strikes at street level, hitting small businesses that are the backbone of local communities.

For Malaysian micro, small and medium enterprises (MSMEs), the scale of the challenge is well-known. MSMEs employ 8.1 million Malaysians, which is nearly half of the total workforce and accounts for 35.9% of the GDP.

Protecting these businesses is not an issue of corporate welfare, it is a matter of safeguarding the well-being of families and the foundations of the economy.

The government has signalled that it is listening. Through the National Economic Action Council, there is a concerted effort to move away from policy developed in isolation toward a framework built on direct engagement.

Big plans for small businesses

The target under the 13th Malaysia Plan, aimed at increasing the proportion of medium-size enterprises from 1.6% to 5% of all MSMEs by 2030, is ambitious. This is to be done by transforming micro-enterprises into small businesses and small firms into stable, medium-size growth drivers.

The incentives are many. They include:

• RM117 million for eight targeted MSME programmes.
• RM53 million to accelerate digital and AI adoption, ensuring technology remains an enabler, not a barrier.
• RM500 million in soft loans for businesses affected by global trade tensions.
• RM34.9 billion in concessional SME financing through Bank Negara Malaysia.
• RM60 million through Matrade to support SMEs in expanding into new export markets, including Africa, Central Asia and Latin America.

For Anwar this is a government response “grounded not only in words, but (also) in concrete support”.

Over and above that, other initiatives have been announced by the various ministries for sectors under their purview.

Minister of entrepreneur development and cooperatives Steven Sim announced a RM5 billion package in low-cost financing with finance charges as low as 3% to 5%. This is part of a broader “Powerup10k” campaign aiming to release up to RM15 billion in financing this year to help 10,000 businesses automate and green their operations.

Tourism minister Tiong King Sing said his ministry is developing measures to assist tourism transport operators and has called for data to help get the policy design right.

Deputy minister of domestic trade and cost of living Fuziah Salleh is getting the Malaysian Muslim Restaurant Owners Association to explain its claim that mamak restaurants are forced to pay up to 30% more for certain goods.

However, while these interventions are welcome, they often focus on the supply of credit, essentially asking businesses to take on more debt to manage a crisis of rising costs.

For many micro-entrepreneurs already operating on razor-thin margins, the prospect of more financing is less attractive than the prospect of lower overheads.

The current step, while proactive, risks getting bogged down in the complexity of application processes and the bureaucracy of targeted assistance.

In response to the West Asia conflict and oil price hike, the government must recognise that the most effective support for MSMEs is often the simplest.

Low-interest loans provide only a temporary cushion which is actually not helpful for risk averse entrepreneurs.

Long-term resilience requires a more direct fiscal response focusing on lower corporate tax rates for small firms, broader tax exemptions for start-ups and low-revenue businesses and a radical reduction in the red tape and compliance costs that stifle growth.

If you ask MSMEs, they will tell you they do not want more debt and more application costs.

What they want is direct cost-relief which is always more efficient than complex credit-subsidies and will ensure that Malaysia’s MSME backbone does not break under the weight of bureaucracy. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.