PLENARY SESSION 3: DFI - Developmental Role vs. Sustainability by. Datuk Mohd Radzif Mohd Yunus SME BANK MALAYSIA

Transcription

1 PLENARY SESSION 3: DFIs and SME Development & Finance DFI - Developmental Role vs. Sustainability by Datuk Mohd Radzif Mohd Yunus SME BANK MALAYSIA 35 th ADFIAP ANNUAL MEETINGS Istanbul, Turkey 26 April 2012

2 Presentation Outline Perspective of Development Financial Institutions in Malaysia Mandate and Government s Agenda Regulatory and Supervisory Regime Main Roles of the DFIs An Integrated Approach by SME Bank Malaysia SMEs Development Program and Training Needs Changing Scenario and Key Challenges Conclusion 2

3 Perspective of DFIs in Malaysia Role and functions in providing focused financial and development support to bolster human CAPITAL development, SOCIO- ECONOMIC AGENDA and economic growth DFIs are specialised FIs established by the Government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country The 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 and supervised by the Central Bank 3

4 Unique Individual Mandate DFI MANDATE GOVERNING ACT Development Bank of Malaysia (Bank Pembangunan Malaysia Berhad) SME Bank Malaysia (Bank Perusahaan Kecil & Sederhana Malaysia Berhad) Export-Import Bank of Malaysia Berhad (EXIM) Agro Bank Malaysia (Bank Pertanian Malaysia Berhad ) Co-operative Bank (Bank Kerjasama Rakyat Malaysia Berhad) National Savings Bank (Bank Simpanan Nasional) Providing financial services focusing on capital intensive industry ie. infrastructure projects, maritime & hi-tech sector Providing financing and advisory services activities to SMEs involved in manufacturing, services and construction sectors Providing facilities to support exports & imports of goods, services and overseas investments Providing full range of financial services focusing on agricultural sector Provide financing and accept deposits as well as producing satisfactory dividend for its members (co-operative) To encourage savings, investments and smart financial management among Malaysians to increase quality of life Institutions prescribed under Development Financial Institutions Act 2002 Malaysian Industrial Development Finance - Provide access to finance for manufacturing-based SMEs to accelerate the industrial sector development Pilgrims Fund Board - Assists Muslims in saving gradually towards pilgrimage while invests the savings in Shariah compliant investments Borneo Development Corp (Sabah) Provide financial assistance in the form of mortgage loans to the public in Sabah to enable home ownership Credit Guarantee Corporation Provide guarantee cover for loans granted by banks Sabah Development Bank Provide financial assistance in meeting the needs of economic development in the State of Sabah Borneo Development Corp (Sarawak) Undertake property development & construction and to provide end-financing facility to the people in Sarawak Sabah Credit Corporation Provide financing facilities for investment in agriculture, industry, rural and urban housing to promote the economic development of Sabah 4 Institutions NOT prescribed under Development Financial Institutions Act 2002

5 SME Bank Malaysia: Mission and Vision To be a full fledged specialized financial institution to nurture the small medium industry and enterprise for nation building To support Government s Economic Agenda in developing SMEs as an engine of growth 5

6 Government s Agenda 10MP and ETP SME Growth vs. GDP Growth ( ) In efforts to promote Malaysia as a highincome nation by 2020, the Government targets to grow SME industry s contribution to the nation s GDP to 40% in e: estimate 6.0e % 40% 35% 30% 25% 20% 15% 10% 5% 0% Total SME contribution to GDP ( ) 33% 33% 34% 35% 36% 37% 38% 38% 39% 40% SME Bank will provide funding assistance to businesses that are in the Development and Growth stage 6

7 Government s Agenda - SME Master Plan ( ) Raise productivity The Master Plan charts the policy direction of SMEs in all sectors through the year 2020 towards achieving a high income nation in line with the New Economic Model (NEM) Phase I: new SME Development Framework and broad policies and strategies to achieve the NEM goals; Phase II: Master Plan is to look into the specific action plans and the monitoring mechanism Strategic Goals Increase business formation Access to financing Focus Areas Innovation and technology adoption Legal and regulatory environment Infrastructure Expand number of high growth and innovative firms Intensify formalisation Human capital and entrepreneurship development Access to market 7

8 Regulatory and Supervisory Regime Companies Act 1965 Development Financial Institution Act 2002 Anti-Money Laundering and Anti-Terrorism Financing Act 2001 Corporate Governance related Guidelines Legal and Governance Banking Principles A state to balance sustainable development impact and financial stability, hence applies sound banking principles Sound and prudent financial management has allowed considerable leeway to cross subsidise its advisory role Best practices for the management of credit risk Guidelines on management of IT environment Guidelines on Introduction of New Products Guidelines on classification of impaired loans & provisioning Reporting and Prudential Standards Capitalisation and Funding Maintenance of absolute minimum capital Capital adequacy framework Maintenance of reserve fund Annual funding requirement 8

9 Main Roles Integrated Approach by SME Bank Banking Financing Intervention Development Financial assistance serves as enabler for SMEs, as engine of growth, to move up the value chain and create viral effect to the economy High Impact Developmental Program Through Synergized Approach of Financial Assistance and Intervention Hand-holding approach from the entry point to inculcate business acumen and propel SME business to the next level Small Medium Enterprises (SMEs) MICRO SMALL MEDIUM 9

10 SME Development Program Training Needs 100.0% Common Problems Faced by SMEs 100.0% Type of Training Modules Preferred by SMEs 50.0% 50.0% 0.0% Insufficient Working Capital Tough Competition Improper Book Keeping Lack of Admin Staff Incompetent Sales Personnel Low Productivity High Product Rejection Rate Ineffective Debtor Control Ineffective Marketing Strategies High Production Cost Improper Inventory Control Low Staff Discipline Difficulty in Getting Cusomer 0.0% Self Motivation and Satisfaction Public Relations Labour Act Book Keeping and Accounting Cost Management Quality Improvement Inventory Management Working Capital and Cash Management Personnel Management Credit Control Marketing and Strategy Financial Analysis Sales Technique and Skills Training Need Analysis (TNA) Survey Conducted respondents of new and existing entrepreneurs Based o the Survey conducted More than 50% of the respondents faced the major 8 problems Result on TNA Survey revealed that Modules related to management and human resources are most needed by the SMEs, beside the subject on marketing and finance Entrepreneur development and continued investment in human capital remain as the most critical elements in building the capacity and capability of SMEs 10

11 DFIs A Changing Scenario Government s Budgetary Constraint DFIs have been forced to become less dependent as Government face more budgetary constraints and development aid declines To use own financial strength to intermediate between the providers and users of capital To improve Balance Sheet to enhance attractiveness of capital Complementary Function Developmental role or development assistance is often non-recoverable but complements development banking, thus, both functions become mutually reinforcing The functions are bundled together since the skills required for assessing potential investments are similar to those required to address capacity building and other development needs 11

12 On-Going Challenges Balancing Priorities DFIs are required to be self sustaining, and must increasingly raise funds independently, with or without government guarantees; Need to pay special attention to the entity rating and adopt prudent risk management policies and practices; While the mandate of DFIs are clearly developmental, tensions arise with the need to retain its rating vs. to deliver developmental outcomes; DFIs would end up prioritising their financing activities and certain high risk segments of the market would left unserved ; Careful balance must be struck between investments with high returns and less secure or secured but attractive in pursuit of Government s development agenda ; and Balance set of skills to enhance understanding of both Banking & Business capability 12

13 Conclusion Developmental Role vs. Sustainability For DFI to succeed within the rapidly changing environment, they must meet a number of challenges for their effective management; This requires sound governance and financial management, flexibility and the ability to balance cost-effective intermediation and risk management with outreach through smart partnerships, capacity building and knowledge management; DFIs need to sufficiently generate income through diversification of income stream which could be used to cross subsidise its developmental role 13

14 Thank You or contact Head, Corporate Planning & Strategy