Part 2: Understanding BFGS for SMEs in Malaysia

The Business Financing Guarantee Scheme (BFGS) plays a crucial role in aiding Small and Medium Enterprises (SMEs) in Malaysia by offering financial access that helps them stay resilient in an evolving economic landscape.

Following our earlier discussion in Part 1, which introduced BFGS in the context of challenges posed by the US tariffs, in this continuation, we will take a deeper look into the historical perspective, performance, and international comparisons of the scheme.

This blog will offer insights into the evolution of SME financing in Malaysia, the performance of BFGS over the years, and how lessons from international models can provide valuable guidance for future advancements.

Recap of Part 1

Previously, we explored the critical challenges faced by SMEs, including their dependence on exports to tariff-ridden markets like the US. To mitigate these challenges, the government reinforced support policies, introducing improvements to the BFGS to provide better financial access to SMEs.

These enhancements aim to offset economic disruptions, empower businesses, and support diversification efforts.

Read more: Part 1: Navigating Trade Winds: Malaysia’s Business Financing Guarantee Scheme (BFGS) for SMEs Amid US Tariffs

A Historical Perspective on Business Financing Guarantee Schemes in Malaysia

Evolution of SME Financing Support Policies

Over the years, the Malaysian government has heavily emphasised the growth and sustainability of SMEs, recognising their role as the backbone of the national economy. However, a primary challenge faced by SMEs has been a persistent financing gap, stemming from a lack of collateral or credit history required by traditional banks.

The government has not only implemented direct support mechanisms but also encouraged private sector involvement, creating a more collaborative environment for SME growth. The recent advancements in BFGS, particularly as a response to the US tariffs, signify a continuation of this long-standing support by prioritising SME resilience amidst international trade disputes.

Role of Credit Guarantee Corporation Malaysia and SJPP

Established in 1972, the Credit Guarantee Corporation Malaysia Berhad (CGC) has been instrumental in bridging financing gaps for SMEs. Acting as an intermediary between banks and businesses, CGC provides guarantees that make credit more accessible.

With over 539,000 MSMEs supported and guarantees worth RM99.6 billion facilitated as of early 2025, CGC continues to enable SME growth.

Similarly, Syarikat Jaminan Pembiayaan Perniagaan (SJPP) has emerged as a vital government agency focused on executing targeted guarantee schemes.

Notably, the Government Guarantee Schemes MADANI (GGSM and GGSM2) have catered to industries like tech, agriculture, and manufacturing, highlighting a strategic use of guarantees to foster sectoral growth and inclusivity.

Milestones and Transformations in Guarantee Schemes

From the early days of the General Guarantee Scheme (GGS) to the introduction of the more inclusive New Principal Guarantee Scheme (NPGS), Malaysia’s guarantee schemes have evolved substantially.

More recent changes, such as the creation of digital platforms like imSME and sector-specific guarantee frameworks, underscore the government’s commitment to improving accessibility and outreach.

Such continuous adaptation ensures that these schemes remain relevant and effective for Malaysia’s changing economic needs.

Evaluating the Performance of BFGS in Malaysia

Effectiveness in Supporting SME Growth

Studies assessing BFGS outcomes have shown mixed results. While some indicate limited financial additionality, meaning the schemes haven’t always led to significantly more SME lending, others highlight areas of success, including job creation.

Data from CGC suggests that despite challenges, access to financing has been considerably expanded, assisting businesses that would otherwise struggle to secure loans.

Impact on Financial Inclusion and Development

By addressing collateral and credit limitations, BFGS has contributed significantly to financial inclusivity. For example, SME owners with limited banking access can now integrate into Malaysia’s formal financial system.

The scheme also fosters entrepreneurial growth, enabling businesses to access funds for innovation and expansion, crucial for Malaysia’s economic development goals.

Challenges and Lessons from Implementation

Despite its success, certain bottlenecks persist:

• Cumbersome application processes deter smaller businesses from participating.
• Limited awareness about the scheme reduces its reach to SMEs that need it most.
• Moral hazards arise when businesses, knowing their loans are guaranteed, take on excessive risks.

These hurdles underline the need for simplified procedures and robust outreach campaigns, ensuring that support reaches the right beneficiaries.

Learning from Global Business Financing Guarantee Models

Successful Regional Examples

Malaysia has much to learn from other regions:

• Hong Kong offers tiered guarantee options (80%, 90%, up to 100% during the pandemic) under its SME Financing Guarantee Scheme, creating flexibility to address diverse SME needs.
• The European Union’s holistic approach integrates financial guarantees with cross-country evaluations, fostering employment and sales growth within SMEs.
• The United States’ Small Business Administration (SBA) remains a trusted model for its tailored loan programs. The SBA’s focus on competitive terms and flexible conditions has empowered SMEs to weather economic uncertainties effectively.

Innovative Practices to Adopt

• Risk-sharing mechanisms between lenders and governments help reduce default risks while ensuring fair lending practices.
• Sector-specific schemes can enable industries like green tech or manufacturing to thrive.
• Streamlined application processes, supported by digital platforms, make accessing guarantees more efficient and transparent.

Adapting International Models for Malaysian SMEs

While adopting international strategies, Malaysia must align them with its domestic economic conditions. For instance, introducing tiered guarantees like Hong Kong could address local SME diversity. Similarly, expanding non-financial support, such as advisory services, could better equip businesses to utilise guaranteed funds effectively.

International Comparison of SME Financing Schemes

Malaysia’s BFGS compares favourably with similar initiatives globally:

While Malaysia’s BFGS aligns with international best practices, further enhancements to digital accessibility and risk management can amplify its impact.

Strategic Importance of BFGS to Malaysia’s Economy

SMEs as Economic Drivers

SMEs contribute nearly 40% of Malaysia’s GDP and employ almost 50% of its workforce. Their role in fostering entrepreneurship and economic stability amplifies the need for enhanced financing solutions.

Enhancing SME Resilience

The enhanced BFGS ensures SMEs can address immediate challenges, such as higher operating costs due to tariffs, while also investing in long-term competitiveness through automation and market diversification.

Strengthening Economic Development Goals

The scheme aligns seamlessly with Malaysia’s MADANI Economy framework, particularly in promoting financial inclusion and reducing income disparities. Supporting SMEs directly impacts economic diversification, helping Malaysia achieve sustainable and equitable growth.

Paving the Way Forward

Overcoming Challenges

To ensure the success of BFGS:

• Aggressive awareness campaigns should highlight its benefits across all SME sectors.
• Processes should be simplified, making guarantees more accessible for smaller SMEs.
• Collaborative partnerships between government agencies, lenders, and SMEs should foster efficient implementation.

Empowering SMEs to Leverage Opportunities

SMEs should take proactive steps, from leveraging guaranteed finance for digitalisation to exploring new export markets. Maintaining transparent communication throughout the financing process is equally critical for fostering trust with lenders.

Read more: Exploring Opportunities for Investing in Malaysia’s Booming Industries

Unlock Your SME’s Potential with BFGS

The Business Financing Guarantee Scheme represents a pivotal opportunity for Malaysian SMEs to enhance resilience amid economic challenges. With targeted financial backing and innovative strategies, SMEs can pave the way for sustained growth and competitiveness in the global market.

About In.Corp Global Malaysia
In.Corp Global Malaysia, an Ascentium Company, is a trusted corporate service provider offering end-to-end business solutions, including company incorporation, compliance, accounting, taxation, and ESG advisory. With deep local expertise and a strong regional network, we help businesses navigate Malaysia’