Stop treating SMEs like charity

From William Ng

June 27 is World MSME Day. The United Nations has designated the 2026 theme as “Empowering MSMEs through Innovation and Sustainable Industrial Development.”

For Malaysia, SMEs, or small- and medium-enterprises, are the literal translation of this global directive. We account for over 97% of all businesses and employ about half the total workforce, acting as the primary socio-economic shock absorber across the rural and urban divide.

There is no debate as to the importance of SMEs. What is debatable is whether we are getting our fair share of structural support, or whether we are benefiting unfairly from over-attention.

Very often, I am asked what more SMEs want. With a 5.2% GDP growth, why are we still complaining?

The truth is simple: GDP measures output; it does not measure margins. Even if an SME is selling more, the costs of raw materials, electricity, and rent have skyrocketed. If revenue goes up by 5% but costs spike by 10%, every single sen made that contributes to the GDP is actually a step towards bankruptcy.

This margin compression is the result of deep structural shifts in markets, technology, supply chains, consumer behaviour, and workforce dynamics that most SMEs are neither aware of, nor prepared for. These changes cannot be addressed by simply flooding the market with liquidity. Cheap loans do not solve obsolete business models.

Our policymakers mean well, but they are treating the wrong symptoms. We address SME issues like welfare cases; handing out grants, teaching basic business skills, and hoping that throwing money at the problem will magically transform them. 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 build a dependency culture that rewards survival instead of capability. The traditional policy playbook of one-off matching grants and low-cost financing assumes the primary deficit is capital. It isn’t. The real deficit is an execution and business model deficit.

Giving a generic digital grant to an obsolete, low-margin business model simply subsidises its journey toward failure, delaying the inevitable rather than solving the systemic shift.

To break this cycle, the entire ecosystem – comprising 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 SMEs?

To move beyond the welfare mindset, we must confront the four core structural bottlenecks that currently stop our most progressive SMEs from scaling:

• A 20th-century banking system for a 21st-century economy: our banking frameworks remain obsessed with brick-and-mortar collateral like land, factories, or personal guarantees. In a modern, service-driven and creative economy, our best SMEs scale on intellectual property (IP), proprietary code, and human talent. Refusing to recognise intangible assets as valid collateral starves high-growth tech and service sectors of vital financing.
• A compliance economy we are not wired for: mandates like e-invoicing, carbon border adjustment mechanism (CBAM) rules, and strict ESG requirements are the new realities of global supply chains. While necessary for a high-trust economy, most SMEs lack the administrative infrastructure to comply. Pervasive compliance is often the very antithesis of entrepreneurship.
• A runaway GLC oligopoly outcompeting private enterprise: While GLCs are vital for strategic national 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 markets, private firms are forced to take the crumbs left behind.
• Treating entrepreneurship as an alternative to employment: We tend to treat entrepreneurship as a quick fix for unemployment, launching endless initiatives targeted at unemployed youths, single mothers, or former inmates. Any successful entrepreneur will tell you that while starting a business is teachable, succeeding in one is not.

Labour framework 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 (punch 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. 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 – owning 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 architecture, financing, and regulatory framework remain 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 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, and start building world-class SMEs by removing the barriers.

William Ng is the president of the Small and Medium Enterprises Association of Malaysia.

The views expressed are those of the writer and do not necessarily reflect those of FMT.