This study investigates the challenges and opportunities faced by Small and Medium Enterprises (SMEs) in Sabah, with a particular focus on digitalisation and the persistent issue of low business registration. Despite national efforts to drive SME development and technological adoption, many businesses in Sabah remain informal, limiting their access to financial support, government programs, and digital transformation initiatives. Descriptive analysis of business profiles revealed that more than half of the surveyed SMEs are either unregistered or operate informally, with a significant concentration among micro-businesses employing fewer than five workers. The findings highlight that limited awareness, bureaucratic hurdles, and resource constraints contribute to low registration rates, further hindering SMEs’ readiness for digitalisation. In response, this paper proposes a set of policy recommendations including the simplification of registration processes, the provision of financial incentives, enhanced outreach and capacity-building initiatives, and the integration of registration with eligibility for support programs. Strengthening formalization efforts is essential for enabling SMEs to fully participate in Sabah’s evolving digital economy and to ensure inclusive and sustainable economic growth.
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