Image credit: The Malaysian Reserve
KUALA LUMPUR: Micro, small, and medium-sized enterprises worldwide are facing a climate financing gap of US$5.7 trillion (RM23.3 trillion), and even though they account for more than 90% of all businesses and over half of global employment., they receive only a relatively small share of formal financing.
East Asia and the Pacific alone account for about 46% of this global SME financing shortfall, underscoring the scale of unmet demand in this region.
United Nations Development Programme (UNDP) Malaysia, Singapore and Brunei SDG impact finance analyst Ong Pei Ying said Malaysia reflects this broader predicament, with around 1.2 million MSMEs accounting for about 97% of all businesses in the country still encountering significant barriers to accessing adequate financing.
She said while Malaysia’s climate enterprise landscape is increasingly anchored in MSMEs, this segment has historically received limited global attention despite being a “key component” of economic activity.
Ong said there are about 1.2 million MSMEs formally incorporated in Malaysia, most of them relatively young businesses operating for between two and four years and predominantly structured as for-profit, domestically focused enterprises, with only around 40% active in export markets.
“Survey findings show that these climate-focused MSMEs are generally small in scale – over half are micro enterprises with annual revenues clustered between roughly RM100,000 and RM300,000 – but display encouraging performance, with 57% reporting revenue growth and many recording substantial gains in the range of 6% to 30% or more.
“It is quite good to be in the climate business,” she told delegates at the Mobilising Climate Finance for Malaysia’s Sustainable Future event today.
The profile that emerges is of a sector concentrated in Selangor and Kuala Lumpur, primarily serving domestic demand, with the highest levels of activity and response in renewable energy and environmental solutions, and around 73% to 75% clearly identifying as profit-driven businesses.
Despite that, Ong said, over one-third of climate-focused SMEs report that access to funding is severely constrained, mainly due to systemic supply-side failures rather than weaknesses in business viability.
“Funding is simply not flowing: 35% of respondents rate funding availability at two or below, and among these, 60% require more than RM500,000 in capital.
“Supply-side constraints dominate the picture, with 72% highlighting issues such as a lack of available funding (39%) and limited investor interest (33%), rather than deficiencies in their own business models.
“Inefficient funding processes compound these challenges, as 40% of SMEs face lengthy approval timelines (22%) or overly stringent criteria (18%).”
She said this represents a market failure, not a business failure: even among viable SMEs seeking RM500,000 to RM3 million, 45% continue to encounter these barriers despite having clear track records.
As a result, 68% of climate SMEs experience moderate to high difficulty in raising capital in a sector critical to Malaysia’s net-zero transition.
In summary, Ong said nearly 60% of surveyed climate MSMEs in Malaysia require growth funding ranging from RM100,000 to RM3 million. The highest concentration of funding needs falls between RM500,000 and RM1 million, followed closely by RM1 million to RM3 million.
Fewer enterprises report funding needs below RM100,000 or above RM5 million.
Most funders surveyed typically operate within funding ranges of RM2 million to RM5 million, creating a mismatch with MSME demand.
On average, surveyed climate MSMEs require approximately RM2.1 million in funding, Ong said.
Moving on, she said Malaysia is strategically positioned to bridge its climate financing gap by focusing on preserving natural offsets and pursuing ambitious mitigation efforts outlined in key policy frameworks.
Furthermore, the country’s positive and committed pathway for mobilising climate finance is anchored in the recognition that upfront investment will significantly reduce long-term economic losses under business-as-usual climate scenarios.
Ong said central to this pathway is the prioritisation of nature-based and adaptation financing, reflecting the critical role of forests and other natural assets in enabling Malaysia to reach carbon neutrality while safeguarding communities and ecosystems.
“This direction is supported by a progressively more enabling policy and regulatory environment that seeks to align climate objectives with economic resilience and investor confidence.
“Within this context, there is a growing emphasis on meaningful private sector participation in climate solutions, with policy signals and market frameworks designed to overcome existing inertia and crowd in private capital at scale.”
Ong said Malaysia’s Nationally Determined Contribution reported to the United Nations Framework Convention on Climate Change in 2019 reveals total greenhouse gas emissions of approximately 330 million tonnes, with natural sinks – primarily the country’s forests – offsetting two-thirds, or 215 million tonnes, leaving a net 115 million tonnes to address.
“Maintaining current forest cover at 54% (with a minimum threshold of 52%) will preserve these offsets, while NDC 2.0 initiatives focus on reducing the remaining emissions,” she added.
Source: https://thesun.my/business/local-business/malaysian-climate-focused-msmes-struggle-to-get-financing-despite-strong-growth-potential-undp-analyst/