Financing Manufacturing in Malaysia: Experience, Issues and Challenges

Abstract

Since the recovery from the recession in the mid-1980s, the manufacturing sector has continued to provide the main impetus for economic development in Malaysia. The Second Industrial Master Plan (IMP2) which sets the strategy to move to the next stage of industrial development for the period 1996–2005, calls for a fundamental shift in emphasis, transforming the manufacturing activities from labour-intensive, assembly activities to more innovative, higher-technology-based activities. The cluster-based approach, envisaged by the plan, has three interlinked parts — core industries, suppliers and economic foundations — which are expected to lay the basis for a more cohesive and integrated framework for industrial development. A critical aspect of the implementation of the plan is financing.¹ Since independence in 1957, Malaysia’s financial system has experienced tremendous change. Its role has been transformed from financing trade to mobilizing and channelling financial resources to support the manufacturing activities in line with the rapid pace of industrialization in the country. Various specialized financial institutions has emerged and innovative methods of financing have been introduced over the last four decades. The next section studies the Malaysian experience in industrial financing, focusing on the contribution of Malaysia’s financial system to the growing financial needs of the manufacturing sector as well as on recent changes in the financing pattern of industrial firms.

Helpful comments from Jomo K.S. and Rajah Rasiah are gratefully acknowledged; the usual caveat applies.