THE impact of the Covid-19 outbreak is not only on public health but by extension on the economy as well. And just as in terms of public health, both the international and national scenarios are inter-linked.

Malaysia, which has its own cases of Covid-19 infection, is no exception. 

In response, Bank Negara (BNM) had expectedly cut its overnight policy rate (OPR)  by five basis points to 2%, the lowest since January 2010. 

In addition to monetary policy, we can also expect our federal government will also implement counter-cyclical fiscal measures.

The Covid-19 outbreak had also resulted in the fallout of supply and demand shocks to many industries – disrupting the supply chains to small and medium-sized businesses (SMEs) and tourism-linked businesses. 

This in turn has greatly impacted the cash flow of SMEs, thus affecting their overall finances.

In addition to financing issues, SMEs also face higher transaction costs and higher risk premiums.

This is because SMEs pose financial risks for funding institutions, resulting in banks to perceive them as having higher credit risk profiles. 

Thus, for most of their financial needs, small businesses tend to rely on their own savings, moneylenders and non-bank financial sources.

If the economy continues to slow, banks might taper lending to businesses. Therefore, SMEs will experience the credit crunch first.

Their cash flow problems will be exacerbated and heightened – with multiplier effects on the economy and employment. 

The interest rate cuts by BNM can help lower financing costs for SMEs and provide some breathing space.

At the same time, the government’s forthcoming economic stimulus package involves a “Business Disruption Relief Fund” aimed at: 
●    restructuring and extending their principal loan repayments and services, 
●    providing low-cost borrowing and quick access to funds for working capital needs, and
●    increasing SMEs’ research & development spending.

Past assistance by the government such as in response to the global financial crisis in 2008-2009 involved a RM10 million SME Emergency Fund by SME Corporation Malaysia and a RM700 million SME assistance facility by BNM to assist viable SMEs that are facing financial difficulties to obtain financing at a concessionary rate.

Under the BNM’s Facility, the maximum amount of financing per SME was RM1.5 million with a maximum tenure of five years at a 4% lending rate per annum, offered by by Agro Bank, Bank Rakyat, EXIM Bank and SME Bank, with an 80% guarantee coverage by the Credit Guarantee Corporation Malaysia Bhd (CGC).

SMEs as customers of the Direct Access Guarantee Scheme (under CGC) were also encouraged to seek advice and assistance in reviewing their loan packages and repayment schedules. This allows SMEs to restructure their loans respectively.

Furthermore, according to BNM’s demand-side 2018 SME Finance Survey, key constraints in financial challenges for SMEs in financial access was financing barriers in documentation related to creditworthiness.

In neighbouring Singapore, a credit-scoring model called Minterest as employed by a local digital lending platform helps SMEs loans to be approved within 48 hours upon receipt of all completed documents.

Thus, improvements in financial institutions’ digital infrastructure and financial management capabilities by leveraging on smart technologies and Big Data would boost greater access of financing for SMEs.

Fiscal incentives for  research and development (R&D) are also crucial and critical to connect SMEs with higher-learning and research institutions. 

This is one area in which SMEs in Malaysia have tend to neglect - partly due to lack of adequate government support and funding. 

There is a need to relook at the role of R&D in the context of Malaysian SMEs. 

This will contribute towards:

1.Boosting overall productivity, 
2. Closing whatever output gap brought about by lack of investments in R&D in the private sector, particularly among SMEs; and 
3. Being consistent with the government’s digitalisation strategy for the domestic economy, in particular reference to the SMEs.

Moving forward, continuous support and assistance for SMEs’ development is imperative for Malaysia’s economic growth. 

With the help of the forthcoming economic stimulus package, companies’ operating costs can be reduced, thus easing them in managing temporary liquidity setbacks.

In turn, SMEs will be assisted towards ensuring that the domestic supply chain can be cushioned against external shocks. Their export performance can also be boosted at a time of uncertainty and volatility.

As former BNM governor Dr Zeti Akhtar Aziz has said, the development of a strong and dynamic SME sector is a priority of the national agenda.

“It is part of the efforts towards creating sustainable and balanced economic growth.”

So SMEs are vital for our country’s economic health and future. They can provide the country with the resilience to weather economic storms and turbulence. But we must help them and provide the right tools.

This is why helping our SMEs deal with cash flow problems should be seen as part and parcel of the government’s investment in the economy (like investment in infrastructure to generate the multiplier effect). 

Thankfully, we are on the right footing and track. – May 18, 2020.

* Alissa Azizi is a policy researcher.

* 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.