The financial sector has become more broad based, competitive and efficient in providing entrepreneurs with alternative sources of investment capital, a diversified selection of new and innovative products, competitive rates, and more efficient services. This has been accompanied by increased ancilliary support services including business advisory services. These mutually complementary elements are in addition to access, choice of products, pricing and the quality of services to the SMEs. The more globalised environment however, requires new approaches and paradigm shifts are required for SME financing. First, there needs to be a recognition that SMEs are going to be increasingly specialized and diversified. Therefore, the traditional standard transactional and lending-based banking approach needs to shift towards more customized and differentiated financial products and services that are tailored to the size, profile and specific needs of the different SMEs. This in turn, requires a different approach in the way financial institutions manage their relationships with SMEs. As SMEs become more innovative and entrepreneurial, financial institutions will need to be able to form sound judgments about the business of the SMEs based on a broader range of credit information which go beyond the narrow traditional focus on collateral and historical financial information. Second, SMEs are likely to see a more pronounced shift towards more innovative and creative industries, such as green technology, medical sciences, information technology and computer animation. In such knowledge-based industries, the true value of companies is not  2  BIS Review 98/2010  measured in tangible assets, but in intellectual capital and specialist skills.
This trend is particularly pronounced in the APEC economies in which the economic activities are now more diversified – with the growing importance of the services sector, with the agricultural sector becoming more advanced and the industrial sector being supported by a supply chain of small and medium scale businesses. In the APEC region, SMEs account for 90% of the total business establishments and 60% of total employment. In Malaysia, SMEs constitute 99% of all businesses and 57% of total employment. In terms of output, the SME sector in Malaysia accounts for 35% of gross domestic product and 20% of total exports. The SMEs have the advantage of having greater flexibility and the ability to adjust more quickly to changes in the market. The SMEs also have the potential to meet the new challenges to raise productivity and performance. There is therefore enormous potential for SMEs to create significant positive value for the economy, and thus contribute towards sustainable and balanced economic growth, employment and social stability. This morning allow me to take this opportunity to share with you some reflections on SMEs in the more globalised economy, and the role of financial institutions and Governments in supporting the SME sector in the future environment. Prospects for SMEs in a more globalised economy Globalisation has been described as one of the defining changes of the 21st century. More importantly perhaps, is the dramatic change in the nature of the globalization process.