High-level Joint Learning Programme (JLP): Building an Inclusive MSME Ecosystem,
Organized by Bank Negara Malaysia (BNM) and AFI,
Monday, 9 April, 2018
Kuala Lumpur, Malaysia

Opening Remarks by Dr. Alfred Hannig, Executive Director, AFI

Head of BNM delegate,

Governor Dasho Penjore, Royal Monetary Authority of Bhutan,

Governor Abraão de Vasconselos, Banco Central de Timor-Leste,

Distinguished delegates from AFI member institutions,

Colleagues from BNM,

Colleagues from AFI,

It is my pleasure to welcome you, on behalf of Alliance for Financial Inclusion (AFI) to this very special event at our headquarters. Let me take this opportunity to thank Bank Negara Malaysia for hosting us and giving access to this wonderful office and training facility. Thanks also for collaborating with us to design and deliver this Joint Learning Programme: Building an Inclusive MSME Financing Ecosystem.

AFI’s Approach to Capacity Building, Significance of this Event

This is a milestone year for AFI, as AFI turns 10. In the past decade, we as a network have grown tremendously in terms of the commitments we have made to promote financial inclusion, the number of issues that we have worked on, the policy changes that we have brought about together. We have also indeed grown in numbers, but it is the commitment to bring in change that has helped us retain the quality peer learning amongst us. Why I mention this is because of the overwhelming response we received for this very specially designed event.

AFI follows a comprehensive approach to capacity building. While AFI has capacity building events designed specifically to transfer knowledge and skills, each AFI event – whether is the Global Policy Forum, Working Group or training – has a component of capacity building inherent in it by design. And peer learning is the corner stone of AFI’s approach. Every year AFI does the Member Needs Assessment. Our trainings have consistently been rated as one of the preferred services. Participants have consistently provided us feedback on how they have used the learnings in advancing policy changes.

In 2017, when we specifically collected feedback from the high level of our member institutions, and capacity building was rated the highest (8.9/10) amongst all other AFI services. This was a very interesting learning for us and we went ahead and designed this event specially for the high level. And your overwhelming response to the event reinforced for us the commitment you all have shown to bringing in policy changes – by learning about the approaches adopted by the peer institutions, by keeping ahead of the market changes, by spearheading strategic interventions which are based on market realities. Thus, in this week, we learn from our host and peer institutions, we learn from the implementing organisations, and we also connect with end users – thus touching all the critical points of financial inclusion.

Why a Joint Learning Programme on Micro Small Medium Enterprise Finance?

Once we decided to design a learning event for you, the next question was what would be the topic. And we went back to our Member Needs Assessment. MSME Finance was ranked by you as one of the top three policy areas.

The contribution of MSME is significant to promote financial inclusion, especially in emerging economies. It contributes directly to income generation and economic development and thus poverty reduction, which is the number one Sustainable Development Goal (SGD).  Promotion of MSME is most often one of the key pillars for any national financial inclusion strategy. Thus creating an enabling environment for MSMEs to thrive becomes a pre requisite for promoting financial inclusion. The SME Finance Forum highlights that SMEs account for 9 out of 10 businesses, contributes up to half of the GDP and provides two-thirds of jobs globally.

However, though the importance of the sector is accepted, access to finance is a common challenge faced by MSMEs globally. Based on a research conducted by them[1] (SME Finance Forum), 65 million or 40% of formal MSMEs in developing countries have unmet financing needs. The gap is estimated to be $5.2 trillion, which is 1.4 times the current level of MSME lending. Whenever we talk of MSME, the role of women owned businesses need a special mention. They comprise 28% of MSMEs and account for 32% of the MSME finance
gap.

Smart polices can go a long way in addressing the challenges of financing MSMEs. AFI’s SMEF Working Group, was formed in 2013 with two key objectives:

1) To create a shared understanding of how different aspects of financial services contribute to the development of sustainable SMEs in developing and emerging countries; and

(2) To identify policy frameworks and interventions that enable and enhance the socio-economic role of SMEs, with a specific but not exclusive focus on financial sector policy.

The forum has been successful in providing a forum for financial regulators to discuss, innovate and jointly create smart policies that facilitate MSMEs to access to formal financial services. Many of you and others in the AFI network have made Maya Declaration Commitments to firm up your strategy to promote MSMEs financing and taken innovative strides in implementing the strategy. The SMEF WG has been vibrant in pulling together the various policy solutions, approaches adopted and lessons learnt to share in the network. We hope the inputs you receive through the week will help you in the implementation of your country strategies.

Digitally Delivered Credit

A special mention needs to be made on the role of digital services in addressing the challenge of access to finance by MSMEs. It is proven and accepted that the future of financial inclusion lies in adopting digital approaches. It is only prudent to ride the wave of digital innovations to use of digital channels to access formal finance services. Digital innovations come with significant opportunities but they also bring along risks to regulators and to the users. To understand the perspective of the market, AFI’s Consumer Empowerment and Market Conduct WG spearheaded a survey on the performance of digitally delivered credit products, with a focus on repayment (over indebtedness risks), credit assessment models, and pricing and disclosure (contracts provisions) and leading to evolving regulatory oversight mechanisms.

This is just one of the many examples of how the SMEF WG works in tandem with other WGs to address the issues of the MSME finance ecosystem.

Why Bank Negara Malaysia?

In 2012 Malaysia developed a very robust SME Masterplan (2012-2020). At that point, SMEs comprised of 97.3% of the total business establishments, 90% of them being in the services sector. These businesses contributed to 35.9% of GDP, 65% of employment; and 17.8% of exports. The masterplan identified six focus areas to assist the growth of SMEs and access to finance is one of them. To take that forward, Malaysia has developed a comprehensive financing support to ensure creditworthy SMEs have access to financing for working capital and investment. A holistic SME financing ecosystem has been established, which is supported by five pillars – Financial infrastructure, financing and guarantee schemes, debt resolution and management, avenues to seek information and redress and outreach and awareness programs. In this week, you will be introduced to every detail of this robust masterplan and ecosystem and I am sure each one of you will have something to take away.

The week ahead promises to be a week of intense learning. I wish you all the best and we will meet up at the end of the week to discuss on the next steps. We once again thank Bank Negara Malaysia for arranging this event and to you for your response. We are indeed optimistic that we will together make the much needed difference to develop smart policies to address the global challenges of MSME finance.