The Dilemma of SME Part 1

I’ve wanted to write something about SMEs in Brunei because this is another topic which I feel has not been properly addressed and where (again) policies and solutions offered are not coordinated.

I agree that the government has been very supportive in the development of SMEs but I am not convinced with the effectiveness of the given supports. Let’s go back to 30 years ago when Brunei started a SME Loan scheme for Malay citizens in the mid 1970s, known as the EDB scheme which unfortunately did not result in many success stories.

The failure of the EDB scheme to create many SMEs is mainly because it wasn’t participated by the intended recipients. (More than 65% of the loan went to non-entrepreneurs for buildings of houses which were mainly for rentals – not exactly the type of business we are looking for). Why? This is mainly because the EDB required collateral which could not be provided by any would-be genuine entrepreneur who didn’t have the means to do so. And as a result the only group that was able to apply for the loan was mostly those in the government sector, who were NOT trained to be risk-takers and to become genuine entrepreneurs.

Fast forward to today. The EDB scheme is now being replaced by a few financing schemes offered by the Ministry of Industry and Primary Resources through the Brunei Islamic Bank. While the new schemes may no longer be utilized to build rental houses, yet they pose the same constraint (or perhaps even more strict) to Brunei start-ups – the need to provide some forms of collateral in order to participate in the schemes. Well, of course I don’t expect for the money to be distributed freely to anyone who claims to be an entrepreneur but I am also positive that there are Bruneians out there who really have some viable business ideas but do not have the means to meet the banks’ strict loan scrutiny. So, where can they go for help?

This issue of the lack of availability of credits to genuine entrepreneurs and/or if you think in the reverse order, the availability of credits to non-genuine entrepreneurs to me is very much related to the issue of the wide-emerging of ‘Ali-Baba’ businesses. It works in 2 ways. On the one hand, those who are able to obtain the loans, who are mostly government servants, create businesses under the names of their wives/husbands/children while the business itself is run by some foreigners. On the other hand, those who are not able to obtain any loan seek some foreign external investors, and this coupled with the lack of proper business direction and experience, eventually results in the formation of ‘Ali Baba’ firms. This partly explains why despite the growing number of SMEs over the years, the number of success stories is paltry.

Of course the issue of ‘Ali Baba’ businesses is, to a large extent, attributable to the attitude (laziness) and the mentality of our own people (easy money). I personally feel the government’s effort in developing ‘local rakyat melayu Brunei’ to be the champions in the business sector has backfired. Despite all local privileges and the policy of local contents in almost all government projects, the locals still have not changed their position. It makes me wonder whether the very reason Brunei locals have not developed in the business sector compared to non-locals, is due to the over-protectiveness of our policies (all sorts of policies! e.g. land policy, local content, public sector jobs etc.) towards the Brunei locals. How? Those who are excluded from such ‘privilege’ policies have to work for their survivals. To most of them, forming a business IS an economic necessity. This however is not the case for the local Brunei, who have always been pampered and secured with high-paying jobs. And at the same time, those non-locals who see some business opportunities but are not in the position of setting up their own proper businesses seek the locals who are more than willing to lend their names in exchange for some business equity.

This is the real dilemma and poses a challenge to policy formulation. On the one hand, we want to help the locals. On the other hand, how can we ensure that the locals will not abuse any new given support? Nevertheless, Brunei can no longer wait and see and hope for the best. Brunei is not as it was 30 years ago. Brunei NEEDS to diversify its economy and strengthen its private sector. And the private sector needs help.

Anyway, going back to the issue of obtaining start-up credits, I personally think that Brunei should explore the idea of ‘angel investors’ or the provision of ‘seed money’ to new entrepreneurs who have no means to adhere to the collateral requirements of the existing financing schemes. Of course the risk is high but as the saying goes, No Pain No Gain! And if the government is not ready to take the risk, then how can we expect the people to take similar risk?

And at the same time, the issue of ‘Ali Baba’ businesses need to be tacked ASAP. It is simply an economic disease that needs a remedy. I must admit, it is not an easy task as it involves the changing of attitude and mindset and also requires a strong coordination from different government departments. However, as long as the mentality of ‘easy money’ exists among the locals, no matter how sophisticated the supports to local SMEs are, Brunei’s hope to create local businesses may just remain a non-achievable long-term economic goal.

I will write more on SME-related issues. In the meantime, I welcome views from everyone.

Salaam.