Financing gap in Malaysian small-medium enterprises: A supply-side perspective

Abstract

In Malaysia, the issue of financing gap in Small Medium Enterprise (SME) financing is common, but hardly discussed nor researched. The issue of financing gap or lacuna arises due to the mismatch between the demand and supply of institutional funds for SMEs. SMEs contend that finance for SMEs are abundant, however, the supply of bank financing is largely unavailable to them. Banks, on the other hand, maintain that lending to these SMEs remains low because of lack of qualified demand. This brought to the forefront the issue of financing lacuna; a perennial issue in many developing countries, including Malaysia. The objective of this paper is to discuss the financing lacuna in Malaysian SMEs, focussing on the supply side. This paper focuses on the supply perspective to fulfil the research gap in understanding the financing lacuna, which has often been overlooked due to the tendency to analyse financing lacuna from the demand side only. This has been based on surveyed data of SME entrepreneurs. This paper outlines the theoretical approaches and practices of SMEs financing in Malaysia, followed by an analysis of the factors that shaped the financing lacuna (gap).