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publication February 29, 2020

Malaysia's experience with the SME Masterplan: Lessons Learned

SMEs account for 98.5% of total firms in Malaysia, and the bulk of the country’s production and employment. As such, they remain a crucial component of Malaysia’s strategy to become a high-income nation.

  • The government of Malaysia leveraged on the potential of SMEs to increase productivity and promote inclusive growth by launching the SME Masterplan 2012-2020.
  • The SME Masterplan envisioned increasing the participation of SMEs in the national economy and set ambitious targets to attain by 2020. This included expanding contribution of SMEs in national GDP, employment and exports. To achieve these objectives, the government developed four key strategic goals:

(i) Increasing the rate of business formation;

(ii) Expanding the number of high growth and innovative SMEs;

(iii) Raising the productivity of SMEs; and

(iv) Intensifying the rate of formalization

Today, SMEs have started to show more dynamism in the economy contributing to more than one-third of the economy. The leadership of the National SME Development Council has played an important role in this policy agenda.

The SME Masterplan features six high-impact programs (HIPs) and 26 supporting initiatives. Key lessons can be distilled for Malaysia and other countries from the design and implementation of this strategy to boost SME growth and competitiveness.  

  • It is critical to have buy-in from the highest levels. Given the number of implementation agencies involved in SME Development, it was critical to have a champion at the highest level who endorsed the Masterplan.
  • The design of the Masterplan should be based on rigorous analytical underpinnings to assess the factors that hamper the growth and competitiveness of SMEs.
  • The design involved extensive consultations to gather buy-in. The SME Masterplan was developed after extensive engagement with key stakeholders from throughout Malaysia.
  • Promising results can be achieved if the design principles are clearly thought out and implemented. These results also emerge when HIPs function as platforms, facilitating coordination among existing programs and adopt an effective public-private partnership model of implementation.
  • Adequate resources, independence, and mandate must be provided to the central agency to ensure success.
  • A different model of budget allocation needs to be adopted. This model would reward programs that provide effective coordination and end-to-end facilitation to address key constraints to SME growth and competitiveness.
  • Mechanisms are required to facilitate effective coordination among stakeholders. With external stakeholders, this will require frequent consultations and participation in working groups or boards to improve the transparency and accessibility of information.
  • Monitoring and evaluation is key. Without serious attention to regular data collection, data management and analysis, it will be difficult for the Malaysian government to track the efficiency and impact of the SME programs in place and maximize the economic additionality from the programs over the longer term.