KUALA LUMPUR: Small and medium enterprises (SMEs) have low business margin and cash flow limitations despite a general recovery in business.
According to a survey by Small and Medium Enterprises Association Malaysia (Samenta), 29 per cent of SMEs that took part indicated they have less than two months of cash reserve, despite 60 per cent reporting an increase in revenue.
The survey took place in September, with over 500 participants representing SMEs of all sizes and industries taking part.
Besides, 35 per cent of respondents indicated that they could not secure any financing because of limited collateral, complex application process, high interest rates and a lack of credit history.
Samenta national president Datuk William Ng said the number one challenge for SMEs is low business margin due to the continued reliance on manpower, rising costs of raw material, and lack of automation.
"This in turn hurts productivity and profitability. Our SMEs need urgent intervention to help to move up the value chain and focus on activities that will add value and raise productivity.
"The incessant band-aid in the form of grants will only exacerbate the situation, as SMEs find ourselves becoming even more dependent on aid as our margins shrink," Ng said.
The survey also reaffirmed that the main challenges for SMEs are high input costs, weak domestic demand, a weak ringgit, shortage of skilled workers, and increased regulatory enforcement.
Important issues such as environmental, social and governance and the recently ratified Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are low in the priority list of SMEs, as they struggle to survive.
"One of the urgent changes needed is a revision of the definition of SMEs. RM50 million and RM20 million respectively for manufacturers and services sectors are far too low.
"A manufacturer doing RM100 million in business is likely to face exactly the same challenges as one who's at RM50 million. For comparison, in Singapore, an SME is any business with revenue below S$100 million," said Ng.
The association is also appealing to the government to keep or even lower the Overnight Policy Rate in view of the weak ringgit.
"We must not give in to political expediency and avoid politically sensitive decisions such as the reintroduction of a broad-based consumption tax, the reform and rationalisation of subsidies and pensions, and plugging inefficiencies in government expenditures.
"More must also be done to boost the disposable income of middle-income Malaysians, to stimulate greater domestic spending," added Ng.
Source: https://www.nst.com.my/business/economy/2023/10/964700/smes-have-less-two-months-cash-reserve-samenta-study