Small firms in Malaysia get $25 million boost from private equity

Small and medium enterprises (SMEs) in Malaysia are to benefit from a US$25 million boost, thanks to an initiative which raises private funds for investing in businesses that would normally not have access to private equity.

The $25 million injection under the Commonwealth Private Investment Initiative (CPII) was funded by the Credit Guarantee Corporation Malaysia Berhad -- a subsidiary of the central bank of Malaysia -- the Malaysia Employees Provident Fund, and CDC Group plc.

It is managed by a UK-based private equity firm, Aureos Capital Limited, a strategic partner of the Commonwealth Secretariat in implementing the CPII.

“This money is available to small and medium businesses in Malaysia to enable them to invest in promoting better management skills, marketing and financial discipline,” said Dr Indrajit Coomaraswamy, Director of Economic Affairs at the Secretariat.

Under this arrangement, Aureos Capital will use the funds to acquire stakes in SMEs in Malaysia with the aim of making a profit, while at the same time helping the development of the sector.

“We are in partnerships with Aureos because its approach is different from many other private equity operators -- in that while there is a focus on making commercial returns on the invested capital, the broader goal is to increase the development impact by supporting the growth of SMEs to create employment opportunities,” explained Dr Coomaraswamy.

The SME sector is critical to building a strong middle class, which is seen as essential for the creation of stable societies.

“If you look at most developing countries, the SME sector is a major engine for job creation because of its heavy reliance on labour intensive techniques of production, and the use of local inputs as raw materials,” said Dr Coomaraswamy.

The SME sector in Malaysia suffers from inadequate credit, and a study by the National SME Development Council found that SMEs used internally generated funds and money from friends and family to finance operations. The study also found that over 50 per cent of the SME sector in the country lacked collateral necessary for borrowing.

The CPII, a notable example of North-South and South-South co-operation, was launched in 1995. Since then, it has raised more than $500 million for investment in Commonwealth developing countries.

The four regional venture capital type funds, which comprised the first phase of CPII, have been fully invested and have demonstrated that emerging markets in Africa, Asia, the Caribbean and the Pacific can yield attractive returns.

Key Links:

• Malaysia Country Profile
• Small and medium enterprises