Session ii botswana - dfis and the agenda for development expanding possibilities - datuk mohd radzif mohd yunus

SME BANK MALAYSIA21 SEP 2016

CEO Forum of the World Federation of Development Finance Institutions (WFDFI)Gaborone International Conference Center (GICC)Gaborone, Botswana. November 2-4, 2016

Theme: “DFIs: Sustaining Relevance in the Age of Disruption”

DFIs and the Agenda for Development : Expanding Possibilities

by Datuk Mohd Radzif Mohd Yunus

3 Nov 2016

SME BANK MALAYSIA 221 SEP 2016

Overview:SME Landscape in Malaysia

SMEs in Malaysia

Source: SMEs 2011 Census Report by the Statistics Department of Malaysia & Eleventh Malaysia Plan

Source: SME Bank Financing Portfolio YTD Mar 2016

October 2016


Full time employee

Manufacturing Services & Other Sector

Micro Less than 5 employees Less than 5 employeesSmall Between 5 - 75 employees Between 5 - 30 employees

Medium Between 75 - 200 employees Between 30 - 75 employees

Annual Sales

Micro Less than RM300,000 (USD71.4K) Less than RM300,000 (USD71.4K)

Small Between RM300,000 & less than RM15 million (USD3.6M)

Between RM300,000 & less than RM3 million (USD0.7M)

Medium Between RM15 million & RM50 million (USD11.9M)

Between RM3 million & RM20 million (USD4.8M)

Eligibility Criteria

Status Entity defined as Small Medium Enterprise (SME)

Business activity Activities related to manufacturing, services and construction that not in contrary to Shariah principlesPrimary agriculture, mining, private/commercial housing, gambling and other activities determined by the Bank from time to time ARE NOT ELIGIBLE

Ownership Malaysian owned entity ( >51% Malaysian equity)

Note: RM1.00 = USD4.20

SME Definition & General Financing Criteria

October 2016


SME Master Plan 2012-2020

October 2016


Perspective of DFIs in Malaysia : Role of DFIsThe strategic sectors include agriculture, small and medium enterprises (SMEs), infrastructure, maritime, export oriented sector as well as capital-intensive and high-technology industries

The are 13 DFIs in the country of which 6 are prescribed under the Development Financial Institutions Act 2002 or (Amended) Act 2015 and supervised by Bank Negara Malaysia (BNM)

Roles and functions in

providing focused financial and development

support to bolster

economic growth,

socio-economic agenda and human capital development

DFIs are specialised FIs established by the Government with specific mandate to develop and promotekey sectors thatare considered ofstrategicimportance to the overall socio-economic development objectives of the country

October 2016


Rationale of existence : Unique Individual MandateDFI MANDATE

Development Bank of Malaysia

Providing financial services focusing on capital intensive industry i.e. infrastructure projects, maritime & hi-tech sector

SME Bank

Providing financing and advisory services activities to SMEs involved in manufacturing, services and construction sectors

Export-Import Bank of Malaysia Berhad (EXIM)

Providing facilities to support exports & imports of goods, services and overseas investments

Agro Bank Malaysia Providing full range of financial services focusing on agricultural sector

Co-operative Bank Provide financing and accept deposits as well as producing satisfactory dividend for its members (co-operative)

National Savings Bank To encourage savings, investments and smart financial management among Malaysians to increase quality of life

The remaining 7 entities which are not governed by Central Bank have their own respective specific mandates


Central Bank(Regulator)

MITI(Supervising Ministry)

Broad Focus on:• Manufacturing sector• Services sector• Construction sector

SME Bank :Ownership and Reporting

Ministry of Finance(Shareholder – 100% )

• Authorized Capital RM5.0 billion

• Paid up Capital RM1.35 billion


&

A full-fledged specialised financial institution, an international benchmark for nurturing SME excellence

To develop SMEs to be the nation’s engine of growth, in line with the Government’s economic agenda

October 2016


SME Bank Competitive advantages : What SME Bank is doingBeyond Financing

MEDIUMSMALLMICRO

Small Medium Enterprises (SMEs)

DevelopmentBanking

High Impact Developmental Program ThroughSynergized Approach of Financial Assistance and Intervention

Financial assistance serves as enabler

for SMEs, as engine of growth, to move up the value chain and create

viral effect to the economy

Hand-holding approach from the entry point

to inculcate business acumen and propel

SME business to the next level

FINANCING INTERVENTION


~RM40-50B financing not addressed by commercial banks

today

…Working capital and expansion needs

represent ~80% of financing supply gap

…Financing gaps are driven by two broad categories of market

inefficiencies

Note: *Estimated supply gap that are creditworthy (i.e. demanded by viable businesses) Source: BNM, SME Bank primary market research survey (N=300)

Underserved by commercial banks due to information asymmetry, lack of

collateral, age of SMEs, and structural

complexity of industry

Desire to accelerate growth to meet

government’s socio-economic agenda through stimulus

financing

RM40-50B financing not

served by comm. banks

DFIs need to play a critical role in supporting government’s goals for SME sector to (1)address SME financing gap due to continued “market inefficiencies” & (2) invest in capability building to nurture SMEs.

SME Bank focuses on providing funding assistance to businesses that are in the development and

growth stage or small to medium.

Financing Gap for SMEs: Unserved and Underserved markets

October 2016


SME Bank’s mandate is to finance and support the growth of underserved SMEs in a financially sustainable way

“Do Good”Socio-economic Impact

“Do Well”Financial Sustainability

SMEGDP

Impact

BumiParti-

cipationSME

Growth inNKEAs

Access to Financing

Capacity Building

High GrowthSMEs

Nurtured

Financial Sustainability

(ROE to be independently

scalable)

October 2016October 2016

Play the balancing act : Development growth vs financial sustainability


Business Impact

Policy Impact

Other Impact

1.Service Sector

2.Financial Technology

(FinTech)

Large-Scale Involuntary Migration

Cyber Attacks and Terrorist Attacks

Urbanization Scarcity of core commodities (e.g. clean water)

Source: The Global Risks Report 2016-11th Edition

Forces of Change

Climate Change Gen-Y Bloc Economy Ageing Society Women

Economy Rise of the

Richest

Recognize, prepare and act to forces of change


Find new focus sector or in downstream sector

• Moving Digitally• Explore FinTech Financing • e.g. IAP• Look at FinTech Companies- Crowdo &

Others• Factoring and Leasing

Importance & Readiness

FinTech

Bloc Economy

Gen-Y

Ageing Population

Service Sector

Women Economy

Climate Change

Speed of Progression

• 46% of SME Bank workforce(2015)• 9% job turnover rate (2015) • 42.5% at Associate position

Explore new areas of service sector e.g. ICT, Green Tech, R&D

• Potential source of fund• Positive outlook for services sector, luxury items, properties

• Loss to GDP• Positive for waste

mgt .companies

Private pension scheme not ready20

40

60

80

100

• More than half total workforce-woman

• New financing products• Increase woman

entrepreneurship• Concern on TPPA, AEC,

RECEP• Need to push SME-Export

Mapping of our current state to the Forces of Change

29/3/2016

Oil Price

Rise of the Richest

Ringgit vs USD

New Economic Power

• New Export market for SMEs• Opportunities:-provide consultancy in

the new emerging market

SME BANK MALAYSIA 1421 SEP 2016 Source: The Global Risks Report 2016-11th Edition

Realising the opportunities

Focus on mandated role :

financing & developmental

assistance to underserved and

unserved markets

Adoption of financial

technology & digitization for greater market

outreach & productivity

Constant upgrade

capacities & capabilities of

SMEs

Produce innovative products &

programs; thus improve access

to financing

Development of focused strategic

partnership

Improve service delivery and

market outreach

Establishment of Banking

School

Improve infrastructure & distribution

channels

Understand market & take opportunity

offered by trade agreements

Adopting best practices from

other institutions

Mobile Apps, mobile banking

& internet banking

SME BANK MALAYSIA21 SEP 2016October 20163 Nov 2016

Session ii botswana - dfis and the agenda for development expanding possibilities - datuk mohd radzif mohd yunus

Economy & Finance