dfi - developmental role vs. sustainability by - adfiap · dfi - developmental role vs....
TRANSCRIPT
26 April 2012
PLENARY SESSION 3:DFIs and SME Development & Finance
35th ADFIAP ANNUAL MEETINGSIstanbul, Turkey
DFI - Developmental Role vs. Sustainability
by
Datuk Mohd Radzif Mohd YunusSME BANK MALAYSIA
2
Presentation Outline
Perspective of Development Financial Institutions in Malaysia
Mandate and Government‘s Agenda
Regulatory and Supervisory Regime
Main Roles of the DFIs – An Integrated Approach by SME Bank Malaysia
SMEs Development Program and Training Needs
Changing Scenario and Key Challenges
Conclusion
3
Perspective of DFIs in Malaysia
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
Role and functions in providing focused financial and
development support to bolster human CAPITAL development, SOCIO-
ECONOMIC AGENDA and economic growth
4
Unique Individual Mandate
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
GOVERNING ACT
Institutions prescribed under
Development Financial
Institutions Act 2002
Pilgrims Fund Board - Assists Muslims in saving gradually towards pilgrimage while invests the savings in Shariah compliant investments
Sabah Development Bank – Provide financial assistance in meeting the needs of economic development in the State of Sabah
Malaysian Industrial Development Finance - Provide access to finance for manufacturing-based SMEs to accelerate the industrial sector development
Credit Guarantee Corporation – Provide guarantee cover for loans granted by banks
Borneo Development Corp (Sabah) – Provide financial assistance in the form of mortgage loans to the public in Sabah to enable home ownership
Borneo Development Corp (Sarawak) – Undertake property development & construction and to provide end-financing facility to the people in Sarawak
Sabah Credit Corporation – Provide financing facilities for investment in agriculture, industry, rural and urban housing to promote the economic development of Sabah
Institutions NOT prescribed
under Development
Financial Institutions Act
2002
5
SME Bank Malaysia: Mission and Vision
To support Government’s Economic Agenda in
developing SMEs as an engine of growth
To be a full fledged specialized financial institution to nurture the
small medium industry and enterprise for nation building
6
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 40% in
2020.
33% 33% 34% 35% 36% 37% 38% 38% 39% 40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total SME contribution to GDP (2011-2020)
SME Bank will provide funding
assistance to businesses
that are in the Development and Growth
stage
5.1
6.0e
e: estimate
7
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
Government’s Agenda - SME Master Plan (2012-2020)
Innovation and technology adoptionAccess to
financing
Intensify formalisation
Access to market
Legal and regulatory environment
Infrastructure
Human capital and entrepreneurship development
Increase business formation
Expand number of high growth and innovative firms
Raise productivity
Focus Areas
Strategic Goals
8
Regulatory and Supervisory Regime
Legal and Governance
Banking Principles
Capitalisation and Funding
Reporting and
Prudential Standards
Maintenance of absolute minimum capital
Capital adequacy framework
Maintenance of reserve fund
Annual funding requirement
Best practices for the management of credit risk
Guidelines on management of IT environment
Guidelines on Introduction of New Products
Guidelines on classification of impaired loans & provisioning
Companies Act 1965
Development Financial Institution Act 2002
Anti-Money Laundering and Anti-Terrorism Financing Act 2001
Corporate Governance related Guidelines
A state to balance sustainable development impact and financial stability, hence applies sound banking principles
Sound and prudent financial management has allowed considerable leeway to cross subsidise its advisory role
9
Main Roles – Integrated Approach by SME Bank
MEDIUMSMALLMICRO
Small Medium Enterprises (SMEs)
DevelopmentBanking
High Impact Developmental Program Through
Synergized Approach of Financial Assistance
and Intervention
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
Financing Intervention
10
SME Development Program – Training Needs
Based o the Survey conducted – More than 50% of the respondents faced the
major 8 problems
Result on TNA Survey revealed that – Modules related to management and human
resources are most needed by the SMEs, beside the subject on marketing and finance
Entrepreneur development and continued investment in human capital remain as the most critical elements in building the capacity and capability of SMEs
0.0%
50.0%
100.0%
Insufficient Working Capital Ineffective Debtor Control
Tough Competition Ineffective Marketing Strategies
Improper Book Keeping High Production Cost
Lack of Admin Staff Improper Inventory Control
Incompetent Sales Personnel Low Staff Discipline
Low Productivity Difficulty in Getting Cusomer
High Product Rejection Rate
Common Problems Faced by SMEs
1 3 5 7 9 11 132 4 6 8 10 12
1 2
3 4
5 6
7 8
9 10
11 12
13
0.0%
50.0%
100.0%
Self Motivation and Satisfaction Working Capital and Cash Management
Public Relations Personnel Management
Labour Act Credit Control
Book Keeping and Accounting Marketing and Strategy
Cost Management Financial Analysis
Quality Improvement Sales Technique and Skills
Inventory Management
Type of Training Modules Preferred by SMEs
1 3 5 7 9 11 132 4 6 8 10 12
1 2
3 4
5 6
7 8
9 10
11 12
13
Training Need Analysis (TNA) Survey Conducted - 100 respondents of new and existing entrepreneurs
11
DFIs – A Changing Scenario
• DFIs have been forced to become less dependent as Government face more budgetary constraints and development aid declines
• To use own financial strength to intermediate between the providers and users of capital
• To improve Balance Sheet to enhance attractiveness of capital
Government’s Budgetary Constraint
• Developmental role or development assistance is often non-recoverable but complements development banking, thus, both functions become mutually reinforcing
• The functions are bundled together since the skills required for assessing potential investments are similar to those required to address capacity building and other development needs
Complementary Function
12
On-Going Challenges – Balancing Priorities
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;
While the mandate of DFIs are clearly developmental, tensions arise
with the need to retain its rating vs. to deliver developmental outcomes;
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
13
Conclusion – Developmental Role vs. Sustainability
For DFI to succeed within the rapidly changing environment, they must
meet a number of challenges for their effective management;
This 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 subsidise its developmental
role
