TOPIC 7

ENTREPRENEURIAL SOURCE OF CAPITAL AND SUPPORT SYSTEM

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7.0

INTRODUCTION

In Malaysia, the government plays an important role in ensuring that the entrepreneurial industry is moving forward and is able to compete in the local and international arena, besides supporting local industries. The government of Malaysia encourages the participation of the society in the economical development of the country. It has establishes a solid support structure to assist entrepreneurs in setting up a company as well as in financing, managing, and growing the business.

7.1

SOURCES OF CAPITAL

Capital refers to any form of wealth employed to produce more wealth for a firm. It is basically the amount of money needed to start up a business and run the business activities. Most of the small business is started with funds from personal saving, a company but-out, a retirement fund, income from part-time jobs, or a loan from family members and friends.

Personal funds / personal savings SOURCE OF CAPITAL Family and friends Banks and other financial institutions

Figure 7.1: Sources of Capital

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7.1.1

Personal Funds / Personal Savings

It is a first source of capital. An entrepreneur who uses personal funds or saving as business capital gains the confidence of investors and lenders who may later consider investing in the business. However, an entrepreneur should first ensure that the business is feasible before investing his personal savings to safeguard himself from losing everything

7.1.2

Family and friends

Funds from family members and friends is another important source of financing sought by most entrepreneur after using their own funds. This type of fund is easier to raise as it is based on personal relationship and trust. However, those who have given a loan to the entrepreneur will eventually demand their money back even when he can least afford it. Therefore, it is advisable that the entrepreneur repays his loans as soon as possible to the family members and friends to avoid damaging relationships

7.1.3

Banks and Other Financial Institutions

Banks and other financial institutions are one of the sources for external funding to initiate a new business venture or for expanding an existing business. However, for new businesses, loans from banks and financial institutions are not only difficult to obtain because of their lack of track record, but also because o the costs in terms of interest payments, which is a burden to them. Thus, financial institutions have a direct influence on an entrepreneur. There are three types of financing provided by financial institutions.

Financing

Long term

Medium term

Short term

Figure7.2: Types of Financing

TOPIC 7 ENTREPRENEURIAL SOURCE OF CAPITAL AND SUPPORT SYSTEM

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Long term financing It refers to funds borrowed from external sources generally over a long period which is in between 5 and 25 years. The fund obtained from long term financing are usually used to acquire fixed assets such as land, buildings machinery and office equipment. Examples: commercial mortgage and loan term loan agreement from banks.

Medium term financing It refers to a loan made by entrepreneur that ranges around 1 year and not exceeding 8 years. It is commonly based on an agreement between the entrepreneur and the organization that will be providing it. Examples: hire purchase, lease and loan agreements.

Short term financing Bank overdrafts are one of the most typically and frequently used types of short term financing even though the arrangement fees are high. Nonetheless, through this facility, the entrepreneur only pays interest on the amount actually withdrawn. On the other hand, with a bank loan, the entrepreneur will be asked to pay interest on the full amount of the loan regardless of whether he has utilized the amount or otherwise.

7.2

BUSINESS SUPPORT SYSTEM

Business Support System is an aid in terms of financial and technical services by the government and other private agencies. An entrepreneur who is planning a new venture usually faces the dilemma of finding entrepreneurial assistance. With the knowledge of business support system, the entrepreneur will be able to carry out his business smoothly and make informed decision when faced with any uncertainties in his new venture.

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7.2.1

Types of Business Support System

Financial

Technical

Management and Entrepreneur Training

Advisory Service

Location

Marketing

Research and Development

Information

Figure 7.3: Types of Business Support System

Financial

Financial facilities or accommodation is provided by financial institutions for an entrepreneur to start and perform a business. These facilities assist in establishing the factorys site, buying office equipment and purchasing machinery as well as for the capital turn over. Agency Majlis Amanah Rakyat (MARA) Commercial Banks Financial Facility Provides assistance in the form of loans and equipment to SME entrepreneurs. Provide loans that are allocated by the Central Bank of Malaysia (BNM) to be distributed to qualified applicants. dan Gives financial credit to industrial businesses.

Bank Pembangunan Infrastuktur Malaysia Berhad Malaysian Industrial Provides fixed assets financing to manufactures in Development Finance Berhad Malaysia. (MIDF) Bank Pertanian Malaysia (BPM) Gives financial assistance and equipment to agriculture-related industries.
Table 7.1: Financial Facilities Provided by Banks and Agencies in Malaysia

TOPIC 7 ENTREPRENEURIAL SOURCE OF CAPITAL AND SUPPORT SYSTEM

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Technical

An entrepreneur can increase his technical knowledge by attending educational course provided by several agencies in Malaysia. Technical assistance is offered to an entrepreneur or a potential entrepreneur to expose him to the latest production methods and systematic management. Agency Palm Oil Research Industry Malaysia (PORIM) Forest research Institute of Malaysia (FRIM) Financial Facility Develops quality products using the latest technological advancement. Promotes sustainable management and the optimal use of forest resources by generating knowledge and technology through research, development and application. Malaysian Institute of Promotes innovation in information technology. Microelectronic System (MIMOS) Strives to be a premier applied research center in frontier technologies.
Table 7.2: Technical Assistance Provided by Agencies in Malaysia

Management and Entrepreneur Training

Entrepreneur and management training are provided to train entrepreneurs to obtain the necessary skills in the relevant field and knowledge in the area of management. These programs build the entrepreneurs confidence and give them encouragement. Agency Majlis Amanah Rakyat (MARA) Financial Facility Provides training and guidance to SME entrepreneurs so that they are highly skilled in their area of interest. Malaysian Entrepreneurship Plans and implements entrepreneurship development Development Centre (MEDEC) program such as training, education, research and consultancy. State Economic Development Its general aims to provide and promote commercial, Corporation (SEDC) industrial and socio-economic development in the states. National Productivity Provides training in enhancing quality and productivity, Corporation (NPC) consultation services and guidance in Total Quality Management (TQM).
Table 7.3: Management and Entrepreneur Training Provided by Agencies in Malaysia

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Advisory Service

These services are conducted by MARA, MITI, MEDEC, MATRADE and other renowned agencies. These agencies are involved in consulting and monitoring the implementation of the proposal project to ensure no hiccup happens while carrying out the business operations. Agency Majlis Amanah Rakyat (MARA) Financial Facility Apprenticeship Training Scheme, technical Entrepreneurs Program. Majlis Palm Oil Board (MPOB) Technical Advisory Services. Federal Agriculture marketing Enhancement of Product Image and Presentation, Authority (FAMA) vendor Program, development and Quality Product. Department of Agriculture Follow-up on entrepreneurial training and development program.
Table 7.4: Advisory Service Provided by Agencies in Malaysia

Location

These are agencies that provide suitable business locations which are appropriate with the business whereby the location or premise is equipped with all types of facilities including utilities. Agency Financial Facility Majlis Amanah Rakyat (MARA) Provide business sites to carry out business activities. Urban Development Authority Provides and carries out projects at urban settlements (UDA) in terms of development, housing, commercial and industrial issues. State Economic Development Develops basic utilities and areas like pathway and Corporation (SEDC) recreational facilities.
Table 7.5: Location Assistance Provided by Agencies in Malaysia

TOPIC 7 ENTREPRENEURIAL SOURCE OF CAPITAL AND SUPPORT SYSTEM

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Marketing

Marketing is an effort which is performed to penetrate the sale of products or services offered by the business. The purpose of providing marketing assistance is to help an entrepreneur distribute and market his products locally and internationally. Agency Malaysian external Trade Development Corporation (MATRADE) Majlis Palm Oil Board (MPOB) Ministry of International Trade and Industry (MITI) Financial Facility Exposes the entrepreneur to available business opportunities. Technical Advisory Services. In charge of affairs related to foreign trade, high technology, environmental protection and industrial location, energy and other areas.

Table 7.6: Marketing Assistance Provided by Agencies in Malaysia

Research and Development

There are several agencies in Malaysia that helps an entrepreneur to carry out research. The research and analysis that will perform include project possibilities, marketing research and research on technology. Studies conducted by government agencies help the entrepreneur to increase efficiency, technological achievement, production as well as produce better quality products. this effort is done to ensure that he will be able to compete in the local or international arena. Agency Malaysian Agricultural Research and Development Institute (MARDI) Rubber Research Institute Malaysia (RRIM) Malaysian Palm Oil Board (MPOB) Financial Facility Carries out research on the output of agricultural products, improves the quality of agricultural products and produces new seeds for farmers. Carries out research on the quality of rubber and produces new rubber-based products. Carries out research on products produced from the output of palm oil, spreads over them market of palm oil and improves the quality of palm oil. Standard and Industrial Research Focus on discovering and developing new Institute of Malaysia (SIRIM technologies to enable industries to move up the value Berhad) chain.
Table 7.7: Research and Development Assistance Provided by Agencies in Malaysia
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Information

Informational assistance is offered to an entrepreneur in the form of business opportunities, statistics, discovery, research and development and technological development. Most of the agencies have their own collection of information for general usage. Agency Forest Research Institute Malaysia (FRIM) Financial Facility Provides research and development, transfer of technology and testing services for the forest and timber industry. Provides information on business opportunities such as investment, trade, finance, productivity pertaining to manufacturing and service sectors and facilities companies who are coordinates the industrial development in Malaysia. To organize training programs to improve the international marketing skills of Malaysian exporters.

of

Malaysian Industrial development Authority

Malaysian external Trade Development Corporation (MATRADE) Standard and Industrial research Ensure the quality of local products, penetrates the Institute of Malaysia (SIRIM) market potentiality and provides information on new discoveries in production.
Table 7.8: Informational Assistance Provided by Agencies in Malaysia

TOPIC 7 ENTREPRENEURIAL SOURCE OF CAPITAL AND SUPPORT SYSTEM