For businesses and their employees, a lifeline
Malaysia is the third-most export dependent country in Asia after Hong Kong and Singapore, relative to the size of its economy, and SMEs account for a significant portion of the country’s exports.
By Leslie Lau, The Malaysian Insider
Just hours after Datuk Seri Najib Razak delivered his stimulus package speech in Parliament yesterday, scores of merchant bankers, corporate advisors and businessmen were already busy doing back-of-envelope calculations.
There was a palpable sense of relief among the businessmen as they worked late into the night to put forward proposals that would take advantage of the RM25 billion worth of corporate guarantees the government had put together.
“This is a lifeline, particularly for the SMEs,” one corporate advisor told The Malaysian Insider. “This will buy our clients time to restructure and hopefully adapt to survive the recession.”
More important, he said the slew of funds will help inject much-needed cash into the economy, save jobs and generate a multiplier effect for the country.
Small and Medium Enterprises (SMEs) account for at least one third of Malaysia’s economy, and have been under particular pressure because of the global recession and the unwillingness of banks to extend their lines of credit.
SMEs also employ one out of two employees in the country.
Malaysia is the third-most export dependent country in Asia after Hong Kong and Singapore, relative to the size of its economy, and SMEs account for a significant portion of the country’s exports.
Job losses are already mounting with the closure of big electronics plants like Western Digital and Panasonic.
But the government cannot afford to allow the closure of Malaysia’s SMEs, which make everything from clothing, shoes, furniture and engineering products to car parts.
Yesterday, Najib unveiled a stimulus package worth RM60 billion, which is the equivalent of nine per cent of gross domestic product (GDP).
While there has been little in the way of much-needed economic reforms, businessmen welcomed the package for dealing with their more urgent need of sustaining cashflow.
“No one knows how long the recession will last but the funds will help keep thousands of businesses afloat and many more people employed.
“By providing a guarantee, the government is unlocking much needed funds within the banking system,” said one businessman.
According to government statistics, SMEs account for 56 per cent of total employment.
To help the SMEs, the government will establish what it is calling a “Working Capital Guarantee Sceme” with funds totalling RM5 billion.
Under the scheme, 80 per cent of the loans will be guaranteed by the government while 20% will be by financial institutions.
This scheme will provide working capital for companies with shareholder equity below RM20 million.
Another fund worth RM5 billion will be the Industry Restructuring Guarantee Fund for loans to increase productivity and value-added activities, as well as the application of green technology.
The government also plans to set up Financial Guarantee Institution which will eventually help raise bonds totalling RM15 billion under this facility.
This scheme is to help provide credit enhancement to companies intending to raise funds from the bond market.
As part of efforts to finance the stimulus package, Malaysia will also be issuing RM5 billion of three-year Islamic bonds this year, according to Najib.
The bond document will have an annual return of 5 per cent to be paid quarterly to holders.
“Apart from providing an additional savings instrument to the rakyat, the bonds will provide holders with additional income,” Najib told parliament.
“Bondholders will receive additional income of RM250 million a year.”
