Bank Negara Malaysia, World Bank & AFI co-host SME Finance seminar

Bank Negara Malaysia (BNM), World Bank and AFI welcomed participants to a seminar on building sustainable finance ecosystems for small and medium enterprises (SMEs) in the digital age on 24 February in Kuala Lumpur, the first event exclusively co-hosted by the three institutions.

The four-day event aims to provide a platform to share the evolution of Malaysia’s SME finance ecosystem to ensure sustainable financing for SMEs as well as highlighting the use of digital technologies to support new generations of entrepreneurs. Sessions will also shine a spotlight on the latest developments in other countries on diversifying funding sources and service delivery channels to SMEs with technology.

In his opening remarks, AFI Deputy Executive Director Norbert Mumba said that regulators and policymakers must develop policies that help SMEs thrive amid an ever-changing business technological environment.

“With the emergence of the financial technology (FinTech) revolution and alternative finance market, the SME financing landscape has progressed thus ensuring better productivity and efficiency to the industries,” he said.

“The success for sustainable development of SME depends on a permissive and holistic policy environment that will support the widespread adoption of technology that will pave the way for alternative financing for SMEs.”

Mumba noted that AFI members were already making significant headway in this area, citing the recently published SME Finance Guideline Note, which was produced by the Alliance’s SME Finance Working Group. He added that working group members would also put together a comprehensive SME finance development policy framework for both Africa and Latin America with a focus on regional priorities.

Among other developments, he announced that AFI would co-host member training on policy interventions and good practices for the financing of micro, small and medium enterprises (MSMEs) later this year.

AFI’s Mumba used his speech to emphasize that any policy developments for SMEs must also consider the cross-cutting topics of gender, green finance and digitalization in order to ensure long-term sustainability and speed-up global economic growth.

“SME finance policies are a good way to bridge the gender gap in financial inclusion as 23 percent of MSMEs are owned by women,” he said.

World Bank Group Acting Country Manager for Malaysia Rajni Bajpai highlighted how host-nation Malaysia was well-placed to steer discussions, explaining that in recent year it had adopted built a “holistic, sustainable SME support system and SME Finance ecosystem.”

Supporting this, she said, was “solid analytical work to determine areas of policy intervention, enabling regulatory frameworks and strengthening of relevant institutions, especially the government-sponsored agencies in SME support, advisory and financing.”

She added that the Southeast Asian economy had embraced digital innovations and FinTech solutions “to facilitate faster and more customized and diversified solutions [for SME finance] with the support for the financial sector regulatory authorities.”

BNM’s Ruziana Mohd Mokhtar, Deputy Director at its Human Capital Development Centre, also underscored Malaysia’s successes, explaining that the country had “put in a lot of effort into making sure that SMEs continue to be a strong driver of growth.”

“We want to ensure that SMEs continue to flourish with technology playing a bigger role in the national economy,” she told participants.

Speakers noted the importance of SMEs to national economies, with the World Bank’s Bajpai adding that they represent roughly 90 percent of business and more than 50 percent of employment worldwide. With an estimated 600 million jobs needed to be absorbed into the global workforce by 2030, Bajpai said that this made SME development a “high priority” for many governments.

Despite their crucial role, access to finance remains a key constraint to SME growth, with 40 percent of formal SMEs in developing countries having annual unmet financing needs of USD 5.2 trillion. Being less likely to obtain a bank loan compared with larger firms, many rely on informal funds, such as cash from family and friends to initially launch their business.

Forty-four participants are attending the peer learning seminar, including 21 from AFI member institutions in 13 countries.