The government’s intention in promoting franchising is to enable the ordinary person without knowledge and skills to become entrepreneurs who aspire to own businesses that they can call their own. Franchising is seen as the development model that has lesser risks of failure for the aspiring entrepreneur. To this end, the government has introduced many initiatives that are designed to provide the necessary environment, resources and incentives to bring about accelerated development of ‘franchise-preneurs’.
As an overview for the initiated, there is a need to understand the roles and functions of the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC), the ministry that is tasked to formulate directions and policies for the development of the franchise sector. The main objective of MDTCC (in particular the Franchise Development Division) is to provide an environment that helps and encourage the development of quality entrepreneurs that are progressive, competitive and resilient.
Hence the role of the ministry can be described as follows:
- Formulate policies for the development of entrepreneurs in the franchise sector
- Create and implement programmes for the development of ‘franchise-preneurs’
- Coordinate the implementation of programmes at the state and federal levels
- Facilitate entrepreneurs to start their businesses
- Create strategic network and alliances with the private sector at the state, federal and international levels
- Plan and implement programmes that encourage entrepreneurial culture
- Encourage the various agencies under the ministry to develop entrepreneurs
Subsequently, several entrepreneur development programmes had been implemented by agencies such as Perbadanan Nasional Berhad (PNS); previously MARA; assisted by the MFA. Conferences, exhibitions and seminars geared to achieve the following had been implemented:
- Creating entrepreneurial culture
- Training in franchising basics for would be franchisors and would be franchisees
- Training and guidance programmes
- Training for franchise vendors
- Franchise Business Training for Women and Graduates
- Financing Programmes
Franchise Financing Scheme
The Ministry of Entrepreneur and Co-operatives Development (MECD) (previously responsible for franchising development) in conjunction with the Credit Guarantee Corporation (CGC) provided a facility to assist the entrepreneurs to start a franchise business and this is made possible by the participation of financial institutions.
In general the scheme requires the entrepreneur to be registered with the current ministry (the franchise division) and subsequent to confirmation; an application can be forwarded to the relevant financial institutions.
Subject to terms and conditions enforced by the CGC, and the financial institutions, an applicant can submit a proposal to secure facilities of up to RM7.5 million. Such facilities can include short-term loan for the purchase of assets; overdraft facilities; trade financing; working capital and others as determined by the CGC. Details can be obtained from the CGC.
Schemes As Offered By PNS
PNS is an agency tasked to be the leading government agency to develop the franchise sector. It is placed under MDTCC to be directly relevant in playing its role as a lead franchise development agency.
PNS offers financing under the Franchise Investment and Financing Scheme which promotes active participation of entrepreneurs in the franchise sector. Another scheme, the Equity Investment Scheme is aimed to assist companies with potential to be listed.
The most significant scheme is the Franchise Development Assistance Scheme. This scheme is intended to provide assistance to local companies to franchise their businesses. The scheme does not provide full assistance as the entrepreneur is also expected to contribute to the development costs as a show of commitment to franchise his business. Terms and conditions apply – such as registration of participation approved by the ministry; business format franchising as a criteria; the appointment of consultants who are registered. The scheme has a maximum limit of 90% of the development consulting fees and related expenses or RM100,000 whichever is lower.
Some of the other programmes and schemes offered are:
- Franchise Programmes for Graduates and Women Programmes – intensive guidance and practical training; business matching; consulting and monitoring of the would be ‘franchise-preneurs’
- Franchise Mezzanine Scheme – financing for expansion
- Smart-Partnership Franchise Scheme – equity ownership assistance
- Budding Franchise Scheme – development assistance for Bumiputera companies to become franchise businesses
- Franchisor Financing Scheme – term loans to expand franchise businesses
- Franchisee Financing Scheme – term loans to start a franchise business
- Pre-Franchise Scheme – capital financing for expansion
- Youths Franchise Scheme – provision of initial capital
Executive Franchise Scheme – focus on those who had stopped work due to voluntary severance scheme or early retirement
More information can be obtained from the PNS’ Franchise Service Centre at 03-2698 7800.
As a government agency, SME Bank (SME) is intended to be a hub for the small and medium sized enterprises via the provision of financing and integrated services. This means that the focus is on the medium small and micro businesses based on annual sales and manpower strength. For franchising SME targets businesses which a strong potential for franchising. Such target group may come from would-be franchisors; new franchisors; local franchisors that are already established; local franchisees and master franchisees. The sectoral focus is related to manufacturing and services including food; ICT; agro-based; hotel and tourism.
The facilities provided by the SME Bank include fixed or revolving loans, leasing or hire purchase; bank guarantees; letters of credits; and loan stocks. The amount of financing for the micro ‘franchise-preneurs’ is up to a maximum of RM500,000. For franchisors which are categorised as ‘small’, the facilitiy available is up to RM5 million and for franchisors, master franchisees that are classified as ‘medium’ the maximum amount is RM10 million. As for small and medium sized franchisees the maximum financing amount is RM3 million.
The bank also provides support services that include:
- Business advisory services – from business idea assessment; business planning; technical and industry expertise; packaging; branding; business performance reviews; development and rehabilitation of businesses
- Development of new franchises (specific for the ‘micro’ category) – in terms of matching grant for technical and training and franchise prototypes
- Sharing of knowledge – industry and market researches; listing of suppliers of franchise development services and business opportunity matching
The bank is contactable via its website and those interested can also visit the bank’s 16 branches located all over the country.
Another government agency, the Bank Rakyat offers the Franchise-I Financing Scheme which is targeted at the graduates and the women would-be ‘franchise-preneurs’. The scheme is intended to assist the entrepreneur in paying the franchise fees; investment to start up the franchise business; renovations; inventories; fixtures and fittings and working capital.
The margin of financing is up to 80% of the project costs and the facilities is available up to a maximum of RM200,000.
Bank Rakyat can be contacted at Jabatan Pembiayaan IKS – Puan Azlin Hamzah (Francais) at 603-2612 9600.
The Malaysia External Trade Development Corporation (MATRADE) as a government arm in assisting local business to penetrate international market, provides several grant and incentives. Relevant to the franchising sector is the Matching Grant for Market Development, whereby a grant is provided to assist franchisors to undertake activities for the development of export markets.
Franchisor companies can obtain a 50% reimbursable matching grant on the approved costs of the activities mentioned above. Eligible activities include the participation, e.g. in international trade fairs; participation in specialised marketing mission.
(Note: MATRADE recently successfully organised a specialised marketing mission to Vietnam for the franchise sector participated by PNS, MFA, franchisors and Franchise Channel (M) Sdn Bhd as a franchise consultant.)
The claimable expenses include participation fee; airfare; accommodation; rental of exhibition space etc.
Details of the grant and incentives and the accompanying terms and conditions may be obtained from MATRADE at www.matrade.gov.my
or 603-6207 7077.
The government may lead, encourage, develop and support the progress of franchising in the country, but the real growth driver is in the appetite for expansion of the ‘franchise-preneurs’. Whatever assistance and financing made available, they are intended to enable the ‘franchise-preneurs’ to progress and achieve success at higher levels. Hence the commitment of the entrepreneurs is critical and this is seen via his/her attitudes, skills and knowledge.
Franchising is an approach that has great potential in Malaysia as its ‘share’ of the retail business is estimated to be below 10% whereas the developed economies has recorded more than 40% of the retail business being conducted through franchising.
Given the potential for growth in the marketplace and the assistance programmes and schemes made available by the government.
The challenge is now left to the ‘franchise-preneurs’ to tap into the opportunities. As one senior government official mentioned recently, “Malaysian government is one of the most franchise-friendly government you can find”.
Marzuki Ahmad is the Managing Director and Principal Consultant of Franchise Channel (M) Sdn Bhd. He also sits on the Franchise Advisory Board, which is responsible in advising the Ministry of Domestic Trade, Co-operatives and Consumerism and the Registrar of Franchise on franchising matters.