THE previous minimum wage order in Malaysia came into force on May 1, 2022, raising the national monthly minimum wage from RM1,200 to RM1,500, representing a substantial 25% increase.
This bold move reflected the government’s efforts to uplift the welfare of low-income earners by enhancing their earning capacity and increasing their purchasing power.
Continuing this trajectory, the Malaysian Budget 2025 proposes another increase, raising the minimum wage from RM1,500 to RM1,700, to ensure wages align with the rising living costs.
While the focus on wage growth demonstrates the government’s long-term strategy to balance economic inclusivity, it presents opportunities and challenges for small and medium enterprises (SMEs), impacting their financial health and access to financing.
With the new wage hike, SMEs face increased labour costs which, without sufficient financial resources, may strain their operations. Greater operational costs may drive SMEs to seek external financing to manage cash flow, as maintaining working capital is necessary for business adjustment.
As a result, many businesses may require short-term financing solutions to cover payroll expenses, especially in labour-intensive industries.
The government has allocated several initiatives to address the growing demand for external financing.
This includes RM40bil for SME financing and RM3.2bil for micro-loans through Tekun Nasional (National Entrepreneurial Group Economic Fund) and BSN (Bank Simpanan Nasional) that aims to bridge the financing gap for micro and small businesses to access capital for expansion and productivity improvements.
Additionally, RM20bil in loan guarantees for SMEs via Syarikat Jaminan Pembiayaan Perniagaan (SJJP), with RM5bil allocated for Bumiputera entrepreneurs, are available.
Special financing options for women and youth entrepreneurs, totalling RM650mil, are also available to foster inclusivity and support these unrepresented groups in starting or expanding businesses.
Research indicates that increasing the minimum wage has successfully reduced reliance on foreign labourers due to higher costs associated with hiring foreign labourers.
This shift creates more job opportunities for local workers, particularly in low-skilled roles.
Nonetheless, the new wage structure may lead to job losses among small firms and result in high non-compliance rates as businesses struggle to adapt. If there is an insufficient influx of local labour to fill the vacancies, SMEs will likely face labour shortages, potentially impacting their overall business productivity.
To manage rising labour costs, some SMEs are exploring productivity-enhancing measures such as adopting technology and automation.
Investing in green technology, machinery, software or other tools requires substantial capital, which many SMEs may not have readily available.
To support this transition, the government provides RM3.8bil through Bank Negara Malaysia to promote digitalisation, automation and sustainable practices.
Additionally, RM50mil in Digital Matching Grants is available through BSN to help SMEs accelerate digital transformation.
Beyond direct financial support, initiatives led by organisations like the Malaysia Productivity Corporation (MPC) are critical in enhancing SME productivity.
By offering training programmes and consultancy services, the MPC helps SMEs optimise their operations, making them more efficient and better equipped to handle wage increases.
In tandem with these initiatives, financial institutions could collaborate with the MPC to provide loans specifically designed for SMEs participating in these programmes, thereby linking productivity improvements with accessible financing.
By enabling SMEs to adapt through affordable and accessible financing options, Malaysia can mitigate inflationary pressures, reduce unemployment, and ensure that wage increases benefit the intended recipients without compromising economic stability.
Supporting SMEs through targeted financing is not just about helping them survive the wage increase but also about positioning them for growth, innovation and long-term sustainability in the evolving business environment.
Source: https://www.dailyexpress.com.my/read/5831/raising-minimum-wage-cuts-the-reliance-on-foreign-workers/