Supporting MSMEs for a more sustainable and resilient recovery in Malaysia.
Lessons learnt from Micro, Small, and Medium Enterprises (MSMEs) Day 2021
August 5, 2021
The COVID-19 pandemic has been a major disruptor to businesses and has especially highlighted the vulnerability of micro- and informal enterprises. According to the Ministry of Entrepreneur Development and Cooperatives (MEDAC) Malaysia in June 2021, 72% of entrepreneurs expected their businesses will continue to suffer losses, with up to 90% at risk of premature business closure if Movement Control Order (MCO) continues to be in place.
The contributions of micro, small, and medium enterprises (MSMEs) to the economic recovery was emphasized in the 2021 MSMEs Day in the international Theme: “Key to an inclusive and sustainable recovery," and the national theme: “Small businesses, Big ideas.” MSMEs are key contributors to the Sustainable Development Goals (SDGs) particularly Goal 8 (Decent work and economic growth), Goal 1 (No poverty) and Goal 10 (Reduced inequalities).
UNDP Malaysia and MEDAC co-organised a webinar, “Building Back Better: Supporting MSMEs for a more sustainable and resilient recovery” on 29 June 2021 to facilitate international dialogue and exchange of knowledge in support of business recovery measures for MSMEs. The webinar opening remark was delivered by Mr. Niloy Banerjee, Resident Representative, UNDP Malaysia, Singapore and Brunei Darussalam followed by the officiating address by YB Datuk Wira Hajah Mas Ermieyati binti Hj Samsudin, Deputy Minister of MEDAC. In-conversation Session featured Dato’ Suriani Dato’ Ahmad, Secretary General of MEDAC while the plenary session line-up was Datuk Michael Kang, the National President of SME Association of Malaysia, Ms. Rachel Burgess, Lecturer from University of Southern Queensland Australia and Mr. Jan Kellett, Special Advisor, Head of Insurance and Risk Finance UNDP based in Geneva Switzerland. The webinar generated four key takeaways, to build back a more inclusive, sustainable, and resilient economy for businesses.
1. Digital transformation and addressing the digital divide
The Deputy Minister of MEDAC Malaysia, YB Datuk Wira Hajah Mas Ermieyati binti Hj Samsudin, noted that businesses that have adopted technology into business operations and achieved digital transformation are better positioned to achieve business continuity.
In the new norm, intensive innovation and digitalisation is a key pathway for reinvigoration of businesses. MSMEs ought to embrace this to fully benefit from the digital revolution and leverage e-commerce platforms and various forms of automation to reduce operating costs, escalate production, and increase revenue. Therefore, it is important to address challenges for entrepreneurs who lack reliable internet access and digital literacy necessary to manage and monitor businesses remotely, enrol in online training for upskilling, and access online government services and support to become resilient.
2. The need for risk insurance
The economic inequality between small and big businesses has been amplified during the pandemic. The capacity of businesses to adapt and cope with restrictions on operations meant to curb the pandemic differ by the size and type of business, which affects access to financial services, market competition, and business risks. Small businesses are disproportionally impacted in their ability to run their business optimally, expose to various risks. However, 90% of micro- and informal enterprises have no insurance coverage (2021). For small and medium enterprises (SMEs), 50 percent were completely uninsured (2019) exposing them to a variety of risks. And for those with insurance, the financial constraints generated by the COVID-19 crisis have caused them to further reduce their insurance coverage. Indeed, overall fire insurance coverage—the top insurance risk for businesses—shrank by 25% in 2020.
To navigate this challenging business landscape, enterprises need suitable business insurance schemes to manage risks. However, there is a lack of insurance products designed for MSMEs. Government support through legislation, regulation, and governance of customized protection schemes for MSMEs is crucial to creating the tools that MSMEs need to stay competitive and resilient in economic crisis. Additionally, business insurance schemes need to be socialized to MSMEs through suitable distribution channels and approaches to encourage wider adoption.
3. The need for level playing field
In the competition between large and small businesses, large businesses have an upper hand due to their ability to dominate the market. The Malaysia Competition Law lays out clear regulations to prevent monopolies and to ensure all business are able to compete regardless of size. These regulations need to be enforced to ensure that MSMEs have a level playing field. Meanwhile, MSMEs should leverage their agility to rapidly pivot operation and business models to adapt to changing circumstances.
Women entrepreneurs and women-led enterprises may face particular challenges in staying competitive. This has been especially evident during the COVID-19 pandemic, with women have been disproportionately burdened with of childcare and domestic responsibilities, affecting work and business. A gender lens is required in developing interventions and support for businesses to ensure that women are not further disadvantaged in the playing field.
4. Improving awareness and knowledge on MSME programmes
Equipping businesses and SME civil society groups with relevant knowledge will enable them to be prepared and resilient. As stated by Dato’ Suriani Dato’ Ahmad, Secretary General of MEDAC, “when you equip yourself with knowledge through training centres in Malaysia, you are able to market yourself”. This includes knowledge on digital business, strategies for successful business, latest business trends and know how on where to find assistance.
Though the Government has provided many initiatives to assist in business recovery during the pandemic, many MSMES have not accessed these assistances including training due to lack of awareness of the programme and their eligibility to apply. More targeted communication strategy needs to be in place to ensure information are reaching the MSMEs in need of assistance and capacity building.
All four key takeaways highlighted to help MSMEs build back better are essential in addressing underlying issues of inequality in different forms e.g., gender, digital divide, income that are further perpetuated by the pandemic. Public-private partnership and active engagement with all stakeholders including the SME civil society groups need to be in place to tackle the challenge holistically, as the effects of inequality go beyond the business sphere and affects the wider ecosystem of social wellbeing.
Inequalities spill over to other areas of social development and environmental health and vice versa, as highlighted in the UNDP’s Human Development Report 2020. Therefore, public action and greater local and international collaboration must be mobilised to reduce the widening gap in inequality that threatens to reverse the progress made in achieving the 2030 Agenda for Sustainable Development. As Pedro Conceição, Director of UNDP’s Human Development Report Office wrote, “By tackling inequality, capitalizing on innovation and working with nature, human development could take a transformational step forward to support societies and the planet together”. UNDP Malaysia is committed to work hand in hand with Government of Malaysia in building back better and in addressing inequalities in various forms.