23 May 2013

1. SECTION 2: The infrastructure to support the development and expansion of foreign economic activities of Kazakhstani SMEs Development Financing of SMEs – The Malaysian Experience by Mohamad Sabir Mohamad Sabri SME BANK MALAYSIA VI ASTANA ECONOMIC FORUM Kazakhstan 23 May 2013

2. Overall Financial Landscape • Comprehensive financial landscape for SMEs with diversified sources of financing providers • Banking institutions are the main source for SME banking – 90% • DFIs are specialized institutions established and funded by the government for strategic sectors

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

4. DFI • MANDATE • Development Bank of Malaysia (Bank Pembangunan Malaysia Berhad) • Providing financial services focusing on capital intensive industry ie. infrastructure projects, maritime & hi-tech sector • SME Bank Malaysia(Bank Perusahaan Kecil & Sederhana Malaysia Berhad) • 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 (Bank Pertanian Malaysia Berhad ) • Providing full range of financial services focusing on agricultural sector • Co-operative Bank (Bank Kerjasama Rakyat Malaysia Berhad) • Provide financing and accept deposits as well as producing satisfactory dividend for its members (co-operative) • National Savings Bank (Bank Simpanan Nasional) • To encourage savings, investments and smart financial management among Malaysians to increase quality of life Unique Individual Mandate The remaining 7 entities which are not governed by the Central Bank have their own respective specific mandates

5. Government’s Agenda – 10MP and ETP SME Growth vs. GDP Growth (2001-2011) In efforts to promote Malaysia as a high-income nation by 2020, the Government targets to grow SME industry’s contribution to the nation’s GDP to 41% in 2020. 6.0e 5.1 SME Bank will provide funding assistance to businesses that are in the Development and Growth stage

6. Government’s Agenda - SME Master Plan (2012-2020) Raise productivity Innovation and technology adoption Increase business formation Access to financing • Strategic Goals Legal and regulatory environment • Focus Areas Infrastructure Intensify formalisation Expand number of high growth and innovative firms Human capital and entrepreneurship development Access to market • 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

7. SME Bank Malaysia – Vision and Mission & Vision Mission To Be A Full-Fledged Specialised Financial Institution To Nurture Small Medium Industry Enterprise For Nation Building To Support Government’s Economic Agenda In Developing SMEs As An Engine Of Growth

8. Shareholding and Reporting Structure Supervising Ministry Shareholder 100% owned Regulator Under DFIA 2002 MITI MOF Inc. Central Bank of Malaysia SME Bank Malaysia • Authorized Capital RM5.0 billion • Paid up Capital RM1.35 billion SME Financing • Manufacturing sector • Services sector • Construction sector

9. Main Roles – Integrated Approach Banking Development INTERVENTION FINANCING 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 High Impact Developmental Program Through Synergized Approach of Financial Assistance and Intervention Small Medium Enterprises (SMEs) MICRO SMALL MEDIUM

10. Industry Focus Islamic

11. Business Model SME 1 Desired Outcomes: Development Investment to target, Contribution of Ecosystem in Target Economic Sectors, GDP contribution of SME, Market Share SME 2 Cash Flow and Development Strength Government Fund NEED Based SME 3 Financing and Intervention; Partnership SME 4 Outcome Driven Desired Outcomes: Sustainability, Development Impact Risk and Financial Strength Market Fund SME 5 MERIT Based SME 6 BUSINESS MODEL TO SUPPORT GROWTH Program-Managed Lending (PML) Nurturing & Intervention SMEs Ecosystem Target Market Need Based SMEs Merit Based SMEs • Product Terms • Risk Parameters • Source of Funds • Pricing

12. Source of Funding • From shareholders’ contribution • Internally generated funds • GENERAL • Sourced from Government Loans • Loans arranged by Government with Domestic or Foreign Fund Providers • GOVERNMENT • Sourced from the market – via corporate deposits and/or bond/sukuk issuance • MARKET

13. Type of Financing • Land • Building • Machineries • Equipments • Motor Vehicle • Fixed • Revolving FIXED ASSET WORKING CAPITAL • Bai’ Murabahah • Bai’ Dayn • Bai’ Inah • Kafalah • Bai’ BithamanAjil • Bai’ Istisna’ • Ijarah • IjarahThummalBai’

14. Entrepreneur Premise Program 25 Complexes/434 Lots

15. TRAINING Entrepreneurial Training Type Basic Training Intensive Training SMEs Performance Enhancement Training Scope Islamic New Customer Orientation Training EPC Participants SME Bank’s Existing Clients Existing/Would-be Entrepreneurs

16. A Changing Scenario of Development Financing

17. On-Going Challenges – Balancing Act • 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; • 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

18. Development Financing – Conclusion • For DFI to succeed within the rapidly changing environment, they must meet the challenges for an effective management; • 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 subsidize its developmental role

19. For business. For growth. For life. http://www.smebank.com.my or contact m.sabir@smebank.com.my