Descriptive analysis on the pattern of SME financing in Malaysia

Abstract

Previous studies around the world in the field of financing indicate that the small and medium-sized enterprises (SMEs) used more debts rather than equity as a source of external capital. In other words, debt is found to be superior form of financing compared to equity even though credit constraint is still found to have persisted as among the main hurdles to the survival and longevity of the enterprises. The question of whether there is similarity between the stylized patterns of SMEs financing in other parts of the world with that of Malaysian SMEs is something that this study would attempt to investigate. Using descriptive analysis, findings of this study showed that the SMEs in Malaysia are no less different from the rest of their counterparts. One interesting highlight of this study is the fact that a significant number of SMEs sought Islamic financing modes such as Murabahah, Bai' bithaman Ajil and Ijarah as sources of external capital. This could give positive signal for the Islamic financial institutions to offer more of such facilities to the SMEs.