Financing of small firms in Malaysia: comparisons with Indonesia and Singapore

Abstract

Financing of small firms in Malaysia, Indonesia and Singapore is one of the main strategies of promoting them in achieving the country's national development priorities. In Malaysia and Indonesia, pronouncements in national development plans have led to the passage of specific laws and regulations favourable to small and medium enterprises (SMEs). Singapore however, stresses die need to create an overall economic climate conducive to enterprise, and believes that the market can provide many services for SMEs more effectively than the Government. Policies and programmes established to redress the financial constraint are classified into those which improve the business environment or those which create or develop small firms directly. Singapore appears to be successful in creating an overall conducive economic climate to enterprises. Regarding the objective of creating SMEs to be viable exporters of manufactured goods to world markets, there is yet an overall assessment to show its conclusive success. Malaysia and Indonesia had the additional problem of both poverty and lack of entrepreneurship concentrated in the indigenous people. Both these countries responded by various policies which appear complicated. In Malaysia, the incentives offered and the number of organisations involved indicate that the government is favourably disposed towards entrepreneurship and investments by SMEs. Some of the specific incentives have shown to be very effective; others slightly effective; a few have unintended effects. Institutional finance to facilitate the creation of entrepreneurs seems to be available but there seems to be an information gap, advice gap and education gap to meet the desired objective. Overall, financial institutions as a source of finance in Indonesia are still not readily accessible to the majority of small firms.