SMALL and medium enterprises are like the goose that lays eggs. These eggs are used by them not only for their sustenance and growth, but also for almost everybody in the economy.

Now, if they have a problem laying eggs, they will self-destruct in just a few weeks, or at most, one month. With their destruction, there’ll be a domino effect, bringing the entire economy to its knees in a few months.

That is the brutal truth of the workings of the modern economy. Another brutal truth: they need to be rescued, and rescued fast enough. A third brutal truth: the rescue cannot be in peanut amounts; it has to be huge and staggering.

SMEs play a crucial, pivotal role in the development and growth of the Malaysian economy. They constitute 98.5%, or nearly one million, of all business establishments. They provided 66.2% of total employment in 2018.

Here are more hard facts about the contribution of SMEs to the nation:

- Their contribution to GDP is projected to expand at a moderate pace of 5.8% for 2019 (6.2% in 2018).

-  In 2018, the total exports of SMEs stood at 17.3%, and this is expected to increase for 2019.

- In the services sector, the contribution of the tourism sector, where there is a preponderance of SMEs, is significant – in 2019, there were 28.1 million tourist arrivals, generating RM 92.2 billion in tourist receipts.

- In term of the supply chain and business linkages, 68.1% of SMEs are direct suppliers of large foreign firms in Malaysia.

- Out of the SMEs that are indirect suppliers, 21.6% supply through an intermediary that is a Malaysian SME, 16.4% through an intermediary that is another large foreign firm in Malaysia, 12.9% through an intermediary that is a foreign SME in Malaysia, and 12.1% through an intermediary that is a large Malaysian firm.

While the stimulus package announced by Prime Minister Muhyiddin Yassin to help the country cope with the Covid-19 pandemic is very comprehensive in that it doesn’t leave anyone behind, the focus on SMEs clearly requires more depth in terms of their survival not only during this health crisis, but especially in the aftermath.

Whether by design or not, this is meant to gather more feedback from SMEs for future stimulus packages. The lack of knowledge on the government’s next step for SMEs is very disconcerting to them. The SMEs themselves admitted that the current stimulus package is very good in addressing the demand side of their problem, but it leaves much to be desired for the supply side.

If their concerns about the supply side are not addressed urgently, it will certainly spell an economic death for most SMEs because they had already dealt with the multiple whammies facing the world economy before Covid-19 reared its ugly head.

But, there is a saving grace.

According to Harvard University Professor Karen Mills, a former small business administrator in the Barack Obama administration, unlike the global economic recession of 2008, which acutely impacted SMEs and during which banks in general had a liquidity problem, in the case of the economic fallout today brought about by Covid-19, banks are in a good position in terms of liquidity, which can be used to help SMEs tide over this difficult time.

Under the Prihatin stimulus package, banks are doing this through Bank Negara Malaysia’s directives, such as granting a moratorium on loans and offering a Covid-19 special relief fund (SRF) for SMEs. The government is offering a RM50 billion loan guarantee facility to all SMEs and a wage subsidy to all employers.

This is a good start, but still not enough. If there is Covid-19 but no movement-control order (MCO), perhaps, that could be sufficient for a start. The MCO, although very important, is a game changer. It makes SMEs a paymaster for many Malaysians, but without the means to do anything to earn revenue. What buffer they have in terms of cash savings will be gone by the time the MCO is lifted.

So, the first order of business is to compensate across the board the loss of revenue during the MCO, to put them back in the same position pre-MCO.

From there, when the MCO is lifted, the focus will be on assisting SMEs with their cash-flow problem. The moratorium on loans helps alleviate this problem in some ways.

More importantly, the requirements and conditions for obtaining funds from the SRF need to be tweaked, to make it flexible enough for SMEs to apply. This would require, among others:

- Waiving any CCRIS/CTOS concerns from January to March 2020 due to the economic slowdown.

- Reducing the two-year audited account requirement to only one year.

- Requiring banks to change the funding criterion of “must be our current customer” to “must be a current customer of a recognised financial institution”.

- Simplify documents for application, and if need be, include a director guarantee on disbursed loans for risk.

- A 10-business day turnaround from application to disbursal.

- Waiving the profitability requirement for high-growth SMEs with a proven cash flow.

Next, banks’ guarantee facilities should be modified as follows:

- The loan guarantee facility is distributed with a ratio of 70% for businesses with not more than 250 employees, and 30% for those with more than 250 employees.

- The loan amount for this guarantee is RM100,000 to RM2 million for small businesses, and RM10 million to RM25 million for medium businesses.

- Fees or charges for the application should be discounted or waived.

Interest-free soft loans should be targeted at start-ups, small enterprises or businesses that are less than five years old, while a standby soft loan facility worth RM25 billion should be made available from September, or earlier if SMEs are still in dire straits.

Meanwhile, for non-SMEs, Mills advised that at this critical time, they could play a useful role, such as paying their bills, especially to their suppliers, as well as rent and utilities, on time. This will provide SMEs with further assistance.

While our main concerns are public health and the welfare of the people, it is also vital for the government to increase and enhance the measures announced in the Prihatin package to save companies from bankruptcy and help them recover quickly once the pandemic is over. – April 1, 2020.

* Jamari Mohtar is director of media and communications at Emir Research.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.