Can cheap loans solve obsolete SME business models?

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Cheap Loans Do Not Solve Obsolete SME Business Models

Cheap loans are insufficient to resolve outdated business models within the Small and Medium Enterprise (SME) sector. While SMEs form a significant portion of Malaysia's economy, accounting for over 97 per cent of all businesses and employing approximately half the workforce, their challenges extend beyond a lack of capital. The core issue lies in margin compression driven by structural market changes, not solely by the cost of financing.
Margin Compression Affects Profitability

Even with increased sales contributing to GDP growth, many SMEs face declining profitability. This is because the costs of raw materials, electricity, and rent have risen disproportionately to revenue. For instance, a 5 per cent increase in revenue coupled with a 10 per cent rise in costs can push a business closer to bankruptcy, regardless of its contribution to overall economic output. This margin compression is a result of evolving markets, technology, supply chains, consumer behaviour, and workforce dynamics, for which many SMEs are unprepared.
Structural Challenges Require More Than Liquidity

Addressing the deep and varied structural challenges faced by SMEs necessitates a shift beyond simply injecting more liquidity into the market. The argument is that providing cheap loans does not rectify fundamental problems with obsolete business models. Instead of treating SMEs as welfare recipients, the focus should be on structural reforms that foster innovation and competitiveness. This approach aims to empower businesses to grow and develop globally competitive brands, moving away from a dependency culture that rewards survival over capability.
Shifting Focus from Poverty Alleviation to Wealth Creation

The prevailing policy approach, which often involves one-off grants and low-cost financing, is seen as fundamentally flawed. This playbook assumes a capital deficit, whereas the real deficit is in execution and business model viability. Providing financial aid to businesses with outdated, low-margin models merely subsidises their eventual failure. To foster genuine economic transformation, the entire ecosystem—policymakers, financial institutions, and business leaders—must transition from poverty alleviation to wealth creation, prioritising value addition, innovation, and global competitiveness.

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Can cheap loans solve obsolete SME business models?

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