The government will continue to facilitate financing for small and medium enterprises (SMEs) since they are the backbone of the economy.

The Ministry of Finance, in its Economic Outlook 2019, said taking into cognizance SMEs’ contribution to the economy, it is crucial to ensure broad funding options are available to support their growth, especially for working capital, improving or upgrading production processes, enhancing research and development activities, and consolidating debt or refinancing.

As at end-July 2018, SME financing is mainly from financial institutions at about 94.9 per cent, with the remainder from the capital market.

About 36.1 per cent of total business entities have benefited from banking sector funding, with 17.5 per cent being non-SMEs and 18.6 per cent being SMEs from various sectors including finance, manufacturing, construction as well as restaurants and hotels.

In this regard, alternative SME financing initiatives focus on the Leading Entrepreneur Accelerator Platform (LEAP) market and other financing channels such as venture capital and peer-to-peer (P2P) financing to broaden investment prospects in the capital market.

The LEAP market addresses the funding gap faced by SMEs through an alternative fundraising platform. First of its kind in ASEAN, the platform aims to create a conducive marketplace.

Since its inception on July 25, 2017, the number of companies successfully listed has grown from two to six as at end-August 2018.

Alternative financing provides an avenue to diversify investment portfolios and deepen Malaysia’s capital market that will be complemented by capacity building programmes.

“Towards the end, SMEs should leverage all the opportunities offered to obtain greater access to financing in the future and eventually enhance their contribution to the economy,” said the report.

The main challenge faced by the SMEs is raising funds to finance their businesses, due to, among others, lack of collateral and financial track record as well as insufficient loan information and documentation.

Given these constraints, SMEs obtain 32.1 per cent of their financing needs from banks, development financial institutions and microcredit institutions while personal savings, shareholders and friends or relatives are the other sources of financing.