Wider financing support for SMEs a good move

PETALING JAYA: Budget 2027’s expanded financing support for small and medium enterprises (SMEs) may ease access to credit, but its impact on sustainable growth could be limited if businesses continue to grapple with rising operating costs.

Prime Minister Datuk Seri Anwar Ibrahim announced several measures to strengthen SME financing, including increasing financing guarantee facilities from RM50bil to RM57bil and introducing lower corporate tax rates for eligible SMEs.

Bank Negara Malaysia (BNM) will provide an additional RM5bil in financing to SMEs affected by the West Asia conflict, following encouraging take-up of the initial facility.

Meanwhile, Bank Pembangunan Malaysia Bhd or BPMB Group will allocate RM7bil across seven strategic sectors, including renewable energy, logistics, aerospace and semiconductors.

Next year, Syarikat Jaminan Pembiayaan Perniagaan Bhd or SJPP and Credit Guarantee Corp Malaysia Bhd or CGC will provide guarantees of up to RM32bil, including RM1bil earmarked for local companies pursuing mergers and acquisitions (M&A).

However, Centre for Market Education economist and chief executive officer Carmelo Ferlito cautioned that easier access to financing would not resolve the underlying cost pressures facing SMEs.

“When costs rise, borrowing to pay them only postpones the problem,” he told StarBiz.

Businesses whose margins are being squeezed by rising labour, utility and compliance costs need relief from those expenses rather than additional debt, he said.

Ferlito also warned that expanded guarantees could weaken lending discipline by reducing banks’ exposure to potential losses and encouraging borrowers to take on excessive risks.

“A bank lending with a 70% to 80% guarantee has less reason to screen borrowers carefully, and borrowers face a lower price of risk than their projects deserve,” he said.

He cited BNM data showing impaired SME loans stood at about 3.5% in the second half of 2025 (2H25), compared with the system-wide gross impaired loans ratio of 1.4%.

“Adding leverage to a segment with thin margins is how temporary distress becomes insolvency,” he said.

Socio-Economic Research Centre executive director Lee Heng Guie, however, said the financing measures could help SMEs modernise operations and strengthen competitiveness, provided the funds were put to productive use.

“These are not grants or free money.

“SMEs must ensure that the financing is used productively, such as to purchase equipment or machinery, expand operations and generate revenue to repay the loans,” he said.

Budget 2027 also allocates RM30mil through the Malaysia Digital Economy Corp or MDEC to help 4,000 SMEs adopt artificial intelligence (AI) and automation, alongside training and certification for 5,000 AI professionals.

Ferlito cautioned that debt-funded technology investments carried additional risks.

This is because productivity gains were uncertain and might not materialise quickly enough to cover loan repayments.

“Nobody can know in advance what productivity gain AI will bring to a given small firm.

“Returns depend on the firm’s processes, staff skills and data, and many such projects fail,” he said.

He added that government guarantees could expose taxpayers to losses if borrowers default, while continued financing for distressed businesses could delay necessary restructuring.

“Guarantee losses become contingent liabilities of the government.

“Private failures are socialised, and the cost falls on the efficient firms and households that pay taxes,” he said.