JUNE 26 — June 27 is World MSME Day. The United Nations has designated the 2026 theme as “Empowering MSMEs through Innovation and Sustainable Industrial Development.” SMEs account for over 97 per cent of all businesses in Malaysia and employ about half the nation’s total workforce. 

SMEs act as the primary socio-economic shock absorber, distributing wealth across the rural and urban divide. When our SME thrives, it funds families, educates the next generation, and seeds grassroots innovation. So, there’s generally no debate as to the importance of SMEs. What’s debatable is whether SMEs are getting their fair share of support from the government and society, or whether they are benefiting unfairly from over-attention. 

Very often, I get asked what more do SMEs want. With a 5.2  per cent GDP growth, why are SMEs still complaining despite the economic progress? The truth is this: we must understand that GDP measures output. It doesn’t measure margins. Even if an SME is selling more (contributing to GDP), the cost of raw materials, electricity, and rent has gone up. If your revenue goes up by 5 per cent but your costs go up by 10 per cent, every single sen that you make that contributes to the GDP is actually a step towards bankruptcy.

This margin compression is not merely the result of the current energy crisis, the reciprocal tariffs before that, or even the compliance costs that SAMENTA has been fighting against for over a decade. This margin compression is the result of changes to the markets, technology, supply chains, consumer behaviour and the workforce that most SMEs are neither aware of nor prepared for. 

These structural changes cannot be addressed by simply flooding the market with more liquidity. Cheap loans do not solve obsolete business models. 

If we want our SMEs to go through this transition and actively drive national competitiveness, we must go beyond helping them to survive. The structural challenges are deep and varied, and would require not just the effort of the SMEs themselves, but also policymakers and the entire SME ecosystem. 

Our policymakers mean well. But they are treating the symptoms wrong. We treat SMEs issues like we treat welfare cases. Our go-to steps are to provide grants and low cost financing, teach ‘weak’ SMEs to do businesses better, and hope that by throwing money at the problem, these businesses will somehow magically transform.

But an SME is not a welfare case, and economic transformation is not an act of charity.

When we treat structural business challenges as welfare issues, we inadvertently build a dependency culture. We reward survival instead of capability. 

The go-to policy playbook of one-off matching grants and low-cost financing is fundamentally flawed because it assumes the primary deficit is a lack of capital. It isn’t. 

The real deficit is an execution and business model deficit. Giving a generic digital grant to a company running an obsolete, low-margin business model is simply subsidising their journey toward failure. It delays the inevitable rather than solving the systemic shift.

To break this cycle, the entire ecosystem: policymakers, financial institutions, and business leaders; must completely shift its approach from poverty alleviation to wealth creation. We need an ecosystem that moves past keeping businesses on life support and instead ruthlessly rewards value-addition, innovation, and global competitiveness.

What’s stopping our SMEs?

To move beyond the welfare mindset, we must understand the core structural bottlenecks that currently stop our most progressive SMEs from growing further. 

•    We have a 20th-century banking system operating for a 21st century economy. Our banking frameworks are stuck in a pre-World War mindset. We remain completely obsessed with brick-and-mortar collateral: land, factories, personal assets or directors’ guarantee. In a modern, service-driven and creative economy, our best SMEs scale on intellectual property (IP), proprietary code, and human talent. If our banking system continues to refuse to recognise intangible assets as valid collateral, it starves high-growth tech, service, and creative sectors of vital financing to grow.

•    We are in a compliance economy that our SMEs are not wired for. Initiatives like e-invoicing, Carbon Border Adjustment Mechanism (CBAM) rules, and strict ESG requirements are not unique to Malaysia or our SMEs. These are the new structural realities of the global supply chain; necessary for the high-trust economy we live in. However, most of our SMEs are not wired to comply. Indeed, compliance is often the antithesis of entrepreneurship. 

•    We allow a runaway GLC oligopoly to outcompete our SMEs. While Government-Linked Companies (GLCs) are vital for major national strategic infrastructure, their footprints in non-strategic commercial services, logistics, and retail spaces crowd out our SMEs. When state-backed giants with cheaper capital access compete in everyday commercial markets, our SMEs have to compete in less lucrative sectors and essentially taking the crumbs left behind by GLCs.

•    We treat entrepreneurship as alternatives of employment. Just as we treat SME challenges like welfare cases, we also have a tendency to treat entrepreneurship as solution to unemployment. Just look at the uncountable number of entrepreneurship initiatives for unemployed youths, single mothers, former inmates, and retiring soldiers. Any successful entrepreneur will tell you that starting a business is teachable, but succeeding in one is not. 

A labour framework designed for our grandfather’s generation

The structural mismatch extends directly into our labour framework. Our existing labour laws are an outdated relic of the industrial age, where productivity was measured strictly by hours spent on a factory floor.

In an economy increasingly integrated with automation and AI, time-based compensation (punching clock cards and fixed working hours) no longer makes sense. It creates an artificial overhead squeeze for employers while failing to reward high-performing, skilled talent.

To lift our stagnant national productivity; which lags significantly behind regional peers like Singapore, we must update our labour legislation to support results-based compensation. Ideally, our laws must allow progressive SMEs to tie wages directly to output and specialised skills. This protects business margins during volatile economic cycles while ensuring employees share directly in the wealth generated by their high-value output.

Made by Malaysia

For decades, we defended our position as a low-cost contract manufacturing and assembly destination. That era is over. Competing purely on cheap labour is a race to the bottom that we can no longer win against emerging regional neighbours.

The structural pivot requires a profound mental shift: moving from Made in Malaysia to Made by Malaysia.

Made in Malaysia is about the physical labour of contract assembly. Made by Malaysia is about ownership; the intellectual property, the brand equity, the original design, and the customer data.

When an SME owns the IP and exports its own global brand, the highest-margin profits flow directly back into the local economy, breaking the low-wage cycle once and for all.

However, almost our entire investment promotion, grant system, financing, and regulations frameworks are built for the obsolete Made in Malaysia regime. That must change. 

If we are serious about moving our SMEs from survival to global domination; we need to harness and free our best entrepreneurial minds and combine that with pragmatic policies that empower without being patronising. Stop treating small businesses like welfare cases to be saved. 

Happy World MSME Day!

* Datuk William Ng is National President of Small and Medium Enterprises Association Malaysia (Samenta)

** Established in 1986, Samenta is Malaysia’s oldest and largest SME association. As a multi-racial, multi-sector organisation, Samenta is dedicated to advocating for a SME-friendly business environment and connecting Malaysian SMEs to regional and global opportunities.

*** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.