Zeti Akhtar Aziz: Strengthening the financial infrastructure for SMEs in Malaysia Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of Strategic Partnership between Credit Guarantee Corporation Berhad and the Islamic Financial Institutions, Kuala Lumpur, 6 February 2007. *  *  *  It is my great pleasure to be here this morning to witness the launch of the strategic partnership between the Credit Guarantee Corporation (CGC) and Islamic financial institutions. This strategic partnership will provide an important platform to the Islamic financial institutions to expand lending activities to the small and medium scale enterprises (SMEs). It therefore, marks an important initiative in the efforts to provide an increased range of financing products to SMEs in addition to enhancing the access to financing. A key national agenda of the Government is to promote a strong and dynamic SME sector which would contribute to ensuring sustainable and balanced economic development. The development of diverse and competitive SMEs will also promote greater resilience of the economy. The SMEs also represent important "incubators" of entrepreneurial talents that will provide for the potential for the development of larger Malaysian corporations. The SMEs can expect to represent an increasingly important source of endogenous growth and employment. The importance of the SME sector to the national economy is evidenced by the fact that it constitutes 99.2% of the total business establishments, employs about 5.6 million people, and contributes about 32% of gross domestic product.

To date, more than 14,000 SMEs have registered in the SME Business Directory of the Portal. In strengthening the financial infrastructure for SMEs, Bank Negara Malaysia has also established the Small Debt Resolution Scheme where viable SMEs that are constrained by non-performing loans are assisted through loan restructuring and the provision of additional funding. In addition, through EXIM Bank, two new trade financing products for SMEs have been introduced in 2006. The Census that was completed in 2005 had however, indicated that about 80% of SMEs are micro enterprises which had limited access to financing from the formal financial system to maintain and expand their businesses. To meet the financing needs of this key segment of the SMEs, microfinancing has now been established in our financial system. A number of financial institutions are participating in providing fast, flexible and convenient access to financing to individuals and micro enterprises for their business activities. The various measures that have been undertaken have now already yielded positive results. SMEs today have had greater access to financing, with the banking institutions being the main source of financing. In 2006, RM40 billion in new loans was approved to more than 84,000 SME accounts. Of this, the Islamic banking institutions provided RM5 billion in new financing, compared with RM3 billion in 2005. The share of SME loans of the banking institutions has increased from 30% of total business loans at end-1999 to 45% at end-2006. Total SME outstanding loans of the banking institutions have now breached the RM100 billion level in 2006.