SMEs in Singapore, as elsewhere, have struggled to cope with the many impacts of COVID-19, with many having to shut operations. This is despite support from the government and financial institutions. In this interview with Unravel, Marc Leong, head of SME banking at Maybank Singapore, talks about how SMEs in Singapore are navigating macroeconomic and geopolitical headwinds and what lies ahead for them.
Unravel: SMEs in Singapore struggled through the pandemic, with many having to shut operations. What is the outlook for Singapore’s SME sector today?
Marc Leong: SMEs are the heart and engine of Singapore’s economy, making up 99% of enterprises here and contributing about 70% of the labour force. They contribute nearly half of Singapore’s gross domestic product (GDP).
SMEs are facing even greater challenges since COVID-19, and now find themselves in an era of geopolitical tensions, rising protectionism, supply chain disruptions and a high-interest rate environment, which have spiralled into a global economic slowdown. With the implementation of a GST hike this year in Singapore, SMEs will also need to manage higher operating business costs.
As Singapore is one of the world’s most open economies, it is imperative for SMEs to brace themselves to surmount headwinds and, at the same time, manage higher operating business costs in the local market with the implementation of GST hike earlier this year.
Singapore’s GDP growth forecast this year is at 0.5 to 2.5%, and many businesses are looking ahead with greater caution. According to the Singapore Business Federation’s National Business Survey 2022/2023, 26% of businesses foresee the economy worsening in the next 12 months.
In view of these market uncertainties, it is important for SMEs to have the right support to keep growing. The Singapore government continues to play a vital role as it rolls out various initiatives to support SMEs. These include the S$150 million SME Co-Investment Fund to support growth-oriented promising SMEs; and the Singapore Global Enterprises initiative to aid large local enterprises in areas such as innovation, internationalisation and fostering partnerships with other companies.
We believe that SMEs have been and will continue to be the core building blocks of Singapore’s growth and prosperity story. With multi-dimensional public and private support, SMEs in Singapore are well-positioned to overcome headwinds and seize opportunities to go regional and international.
Unravel: What are some of the challenges that persist?
Mr Leong: New and young business owners face many challenges in starting a business as they may not have sufficient capital to launch their business. Without at least two years of a business track record, it is often difficult for them to secure financing for business expansion, and they sometimes have to fall back on their savings or fundraising efforts. This is where we want to address the access-to-finance pain point for them through our latest e-financing solution for them to obtain loan approvals within minutes without having to visit a branch.
Unravel: In what ways are SMEs responding to the challenges brought by the pandemic?
Mr Leong: In this inflationary environment, we can expect SMEs to adopt cost-cutting measures and place greater emphasis on business sustainability and profitability to self-sustain their business. This is why they will need access to funding support so they can continue to grow and scale.
There is a concerted effort between the Singapore government and financial institutions to support SMEs, which include measures such as repayment moratoriums, collaborative bank credit management and risk-sharing temporary bridging loans. These measures prevented a potential ‘financial cliff effect’, in particular between 2020 and 2022 during the pandemic period.
The pivot to digitalisation through the pandemic, which accelerated digital adoption by many SMEs, has helped to raise SMEs’ productivity and streamlined operational processes. However, SMEs continue to face new challenges in today’s high inflation and geopolitically tense environment. It is imperative that SMEs exercise business agility and strategic flexibility to navigate a changing and unpredictable market environment.
Unravel: Is digitalisation helping?
Mr Leong: Many entrepreneurs offer innovative products and services but lack the ability or knowhow to fully market and articulate their products or services or have insufficient staff. Many also do not set their operational foundations right at the onset of their business—in areas like accounting, human resources and payroll, which are paper-based, and not institutionalised or systemised. This means when their business becomes brisk, the entrepreneurs are unable to manage the increase in business volume using their manual internal processes. Hence, the digitalisation of processes for SMEs, such as payroll, accounting or cybersecurity, is extremely critical. When SMEs are unable to fulfil their customers’ orders, for example, or have inefficient operational processes, these can be managed by deploying digitalised capabilities to achieve higher productivity to sustain their business.
Based on a 2020 SME Digital Transformation Study, SMEs that are in the midst of implementing digital initiatives estimated that it would deliver 23.5% in cost savings and 26.5% in revenue gains. Infocomm Media Development Authority’s ambitious 20 Industry Digital Plans, Start Digital Programs, CTO-as-a-Service and various grants are all part of the Singapore government’s long-term road map to ensure successful SME business transformation.
Unravel: What are some challenges you’ve faced when it comes to getting more SMEs to digitalise their finance function, including payments, financing, and the like?
Mr Leong: SMEs usually have limited resources when they seek to grow and expand. It is common for SMEs to digitalise their business processes, such as finance and payroll, for greater operational efficiencies and business owners want to focus on core revenue-generating activities like marketing, business development, sales fulfilment, logistics and recruitment. Onboarding SMEs to digitalise their business processes will be an ongoing process, as there could be issues of inertia and change resistance.
In this increasingly digitalised age, more SMEs realise the need to digitalise and even accelerate digitalisation in their organisations so as not to be left behind. Since the launch of IMDA’s Start Digital Programme in 2019, we have successfully helped over 1,000 SMEs adopt and incorporate digital capabilities such as financial accounting, payroll, cybersecurity and digital marketing programmes into their daily operations.
Unravel: Tell us a little bit about the motivation behind the Young Entrepreneur Scheme.
Mr Leong: Maybank serves almost 20% of all micro-businesses and SMEs in Singapore. For over 60 years, we have helped SMEs in Singapore grow to MNC stature by leveraging our strength in doing business locally, throughout ASEAN and beyond.
We believe there are many aspiring entrepreneurs who want to start their own businesses but face several challenges, such as a lack of funds, appropriate business management tools or relevant business experience, as well as a business network to find peer and mentor support.
Empowering SMEs with business agility by leveraging our financing options, business banking services and technological capabilities to grow and scale up their business seamlessly is important to us.
With this in mind, we curated the YES (Young Entrepreneur Scheme) Programme, which provides them with a suite of relevant financial solutions and digital capabilities. The programme addresses gaps and challenges that SME business owners face, such as the lack of funds. New businesses find it hard to get loans, while first-time entrepreneurs may lack appropriate business management tools or relevant business experience, as well as a business network to find peer and mentor support.
We have seen a very good response to our YES programme. We have seen 26% growth in the number of new operating business account openings from July 2022 to December 2022 and a 47% growth in deposit balances in the same period. Today, over 40% of all monthly business account openings are through our online platform.
Unravel: In a post-covid context, do you think more Singaporeans are looking to shun jobs to pursue entrepreneurial ventures, or is it the other way around? Why so?
Mr Leong: The job mindset of a millennial is very different from a boomer or a Gen-X. The younger generation of Singaporeans is generally more educated and well-rounded, with an adventurous streak to take charge of their own careers by being entrepreneurs. They want to pursue their passion, find purpose, seek empowerment and contribute to society through their business or employment endeavours. We have many successful local entrepreneurs’ stories which in turn inspire a whole new generation of budding entrepreneurs.
I would say that there has been a growing interest among Singapore millennials to be entrepreneurs if we were to go by the healthy loan volume increase of 40% from the millennials after the launch of the YES programme (July 2022 to December 2022).
Marc Leong is a career banker, having spent the last 20 years in various business segments and disciplines. Prior to his current role in SME Banking, Marc was involved in branch management, wealth and consumer finance product sales, deposit acquisition, account management, commercial banking, and cash management. In his formative years, Marc also enjoyed short stints with a local bank and a major British-based bank focusing on consumer banking.