The purpose of the research - examination of the support provided by the Malaysian government to small and medium enterprises (hereafter SME) and analyze the possibilities of its application in Azerbaijan Republic and make appropriate proposals.

The methodology of the research - the economic characteristics of the Malaysian economy, as well as the prospects for the development of SMEs, are based on the use of application adaptative methods as a result of official surveys confirming the needs of SMEs in Azerbaijan Republic.

The practical importance of the research - the role and functions of SMEs in Azerbaijan is increasing. At the same time, strengthening the effectiveness, targeting, and transparency of state support mechanisms for entrepreneurship was mentioned in the «2022-2026 Socio-Economic Development Strategy» of Azerbaijan Republic. In this regard, Malaysia's experience in supporting SMEs can be used to realize the aforementioned goals.

The results of the research - SMEs play a crucial role in reducing the unemployment rate, creating new job opportunities, and contributing to balanced socio-economic development. In addition to the state support for the improvement of SMEs in Azerbaijan Republic, the effective stimulative mechanisms of Malaysia should be applied.

The originality and scientific novelty of the research - in this research paper, the main economic indicators, the SMEs environment, the stimulative mechanisms applied by the government, international reports of Malaysian government agencies, and surveys based on the needs of SMEs are refereed. In conclusion, it was proposed to create new stimulating mechanisms for SMEs to start entrepreneurial activities and expand their existing activities in Azerbaijan.

Keywords: SMEs, economic growth, the economy of Azerbaijan, state support, stimulating mechanisms, Malaysia.

https://doi.org/10.59610/bbu2.2023.2.8