Malaysian Small Businesses Bet On Growth Even As Costs Squeeze

SME Bank’s latest sentiment survey shows Malaysian small and medium businesses are feeling more optimistic heading into 2025, with the confidence index rising to 56.8 from 55.1 in the first half of the year.

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Malaysian small and medium enterprises are feeling more optimistic about their prospects heading into 2025, even as they grapple with higher operating costs due to expanded taxes and rising electricity tariffs.

A sentiment survey released by SME Bank recently showed the confidence index among micro, small and medium enterprises (MSMEs) rose to 56.8 in the second half of 2025, up from 55.1 in the first half of the year.

The uptick suggests business owners believe the worst may be behind them – or at least that opportunities ahead outweigh the headaches of doing business in an uncertain economic climate.

Some 68 per cent of respondents expect sales to increase, while 53 per cent plan to hire more workers.

Manufacturing firms were especially bullish, with 89 per cent anticipating growth.

Malaysian MSMEs continue to demonstrate remarkable resilience, supported by stronger economic fundamentals and opportunities ahead, said SME Bank’s president and chief executive officer, Samad Majid Zain.

Costs Remain A Pain Point

But the rosier outlook comes with caveats.

Business owners are facing higher import tariffs, wider Sales and Services Tax (SST) coverage, and increased electricity prices – all squeezing their profit margins and forcing them to cut costs wherever they can.

Cash flow remains tight, especially for the smallest players, with nearly one in three MSMEs holding less than six months of cash reserves.

Here’s the paradox: Micro enterprises are the most optimistic at 65 per cent, while only 44 per cent of medium-sized firms expect growth, said Mazlina Abdul Rahman, SME Bank’s head of economic analysis.

The smallest businesses with the thinnest margins are somehow the most hopeful, while bigger firms with more resources are playing it safe – perhaps because they’re more exposed to rising costs and global uncertainty.

Many are turning to technology and digital tools to work smarter and stay competitive.

Is AI really needed in SME?

I just joined a networking event in Malaysia and talked to a few business owners from traditional businesses.

I asked how much budget would be allocated for IT implementation in their current business workflows (not even AI). They responded that it…
— Soon Lai (@soonlaii) December 21, 2025

Appetite For Financing Remains Strong

Despite the challenges, businesses are betting on growth: 81 per cent plan to obtain financing for either working capital or expansion, rather than playing it safe.

Some are also building stronger safety nets, with 15 per cent now holding cash reserves for more than three years.

The survey, conducted between July and October, gathered responses from nearly 2,000 business owners across 40 sectors.

This matters because small and medium enterprises form the backbone of Malaysia’s economy – they employ most people and drive growth, so when they’re confident enough to hire and invest, it usually signals the broader economy is heading in the right direction.

But there’s a catch: Many MSMEs remain one bad quarter away from serious trouble, especially the smallest ones operating with minimal cash reserves.

How well these businesses weather the storm will show whether their optimism is based on real opportunities or just hope in difficult times.