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Enhancing Small and Medium Enterprises’ (SMEs’) Access to Financing: A Case of Malaysia

Mohd Idris, F (2024) Enhancing Small and Medium Enterprises’ (SMEs’) Access to Financing: A Case of Malaysia. Doctoral thesis, Liverpool John Moores University.

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Small and Medium Enterprises (SMEs) contribute to a country’s economic development by increasing export earnings, creating job opportunities and reducing poverty. However, SMEs in developing countries often face significant financing constraints, despite government subsidies. This study aims to explore the financing practices of banks and investigate SMEs’ perceptions of banks’ financing requirements and decisions. It seeks to identify both similarities and differences in the views of SMEs and banks to bridge the financing gap. Subsequently, a framework is proposed, drawing from the perspectives of both stakeholders and banks, to improve SMEs’ access to financing in Malaysia. The findings reveal that each bank has its own distinct methods for evaluating financing applications. There are discrepancies in the documents and information provided by SMEs, which in their view, meet the bank’s expectations. Additionally, the study highlights the significant influence of SMEs’ characteristics on their perceptions of barriers to access financing.

The thesis employs a pragmatic approach to examine the SME financing gap from the perspectives of both SMEs and banks. For qualitative analysis, data were collected through secondary desk research on bank financing policies and processes. Semi-structured interviews were conducted with 12 bank managers from Malaysian Specialised Financial Institutions (SFIs). The data were analysed using content analysis, focusing on the SME financing evaluation process and decision making, addressing the first research question. For the quantitative analysis, data were gathered from 378 questionnaires distributed to SMEs that approached selected Specialised Financial Institutions for financing. Factor analysis, multiple correspondence analysis, T-Test and ANOVA were employed to empirically analyse the data. This analysis conducted on firm characteristics (age, size and legal form) and owner characteristics (age, qualification and experience), hence addressing the second research question.

This research has developed a comprehensive framework to guide SMEs and banks in enhancing financing accessibility in Malaysia. The results indicate that SFIs prioritise the evaluation of business and management track records in their credit assessments, followed by supporting documents and prerequisite information. Additionally, SFIs analyse creditworthiness using the 5Cs of credit principles and risk scoring to make financing decisions. The findings also align with the theoretical predictions of past studies about the role of firm resources and transparency in influencing access to financing. SMEs’ lack of comprehensive information resulted in high information asymmetry between SMEs and the SFIs. Consequently, SFIs apply stringent financing terms and conditions, such as reduced financing amount and shortened duration, as risk management strategies. Although SFIs’ advantages over traditional banks include subsidised interest rate and non-collateral-based lending, however, the findings also reveal a significant expectation gap between SMEs and the financial provider, resulting in market failure; hence, this answered the third research question.

This research contributes to the limited literature on the SME financing gap in the context of a developing economy. These findings have implications for both SMEs and banks, as well as policymakers. A strong initiative is required to improve the quality of information and access to financing for both SMEs and banks. This study expands knowledge by presenting a framework based on bank practices and perceptions of Malaysian entrepreneurs, thus addressing the fourth research question. It also contributes to a better knowledge and understanding of these elements, which could be applied in other similar situations.

Item Type: Thesis (Doctoral)
Additional Information: Copyright licence requested organisation that have an interest in the intellectual property rights: Majlis Amanah Rakyat (MARA) AM 05/03/2024
Uncontrolled Keywords: Financing SMEs
Subjects: H Social Sciences > HF Commerce > HF5001 Business
H Social Sciences > HG Finance
Divisions: Business & Management (from Sep 19)
SWORD Depositor: A Symplectic
Date Deposited: 15 Mar 2024 11:26
Last Modified: 15 Mar 2024 11:26
Supervisors: O'Brien, S, Kok, S and Foster, S
URI: https://researchonline.ljmu.ac.uk/id/eprint/22685
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