Abu Hassan Alshari Yahaya: SMEs and financial inclusion
Speech by Mr Abu Hassan Alshari Yahaya, Assistant Governor of the Central Bank of Malaysia
(Bank Negara Malaysia), at the Credit Guarantee Corporation Malaysia Berhad (CGC) SME
Awards 2018, Kuala Lumpur, 27 June 2018.
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It is my pleasure to address you this evening at the SME Awards hosted by Credit Guarantee
Corporation Malaysia Berhad (CGC). I would like to commend CGC for the continuous effort in
championing the SME cause, and in recognising the banking and financial industry players that
have made meaningful contribution in supporting the SMEs.
As mentioned by Dato' Agil, 'Digital Disruption' has become the new normal not only for the
banking and financial industry, but also for other sectors and industries. We have seen the
fortunes of traditional businesses changing overnight with technological disruption. In fact, the
financial industry may at times need to play catch up to ensure products and services are
relevant in a new digital economy. We believe CGC will continue in its efforts to be agile and
dynamic in embracing the higher expectations of meeting the financing needs of SMEs moving
into the future.
SMEs and Financial Inclusion
In broad terms, financial inclusion means access to affordable financial products and services
that meet the needs of individuals and businesses and that are delivered in a responsible and
sustainable manner. At Bank Negara Malaysia, we recognise the impact of financial inclusion on
the broader economic performance of our country. Financial inclusion facilitates productive
financing and investments which generates income for the underserved, improves equality and
contributes to sustainable growth. Having an inclusive financial system is also important to
ensure economic and social progress on the development agenda is achieved. Therefore,
CGC's goal of ensuring access to financial services for SMEs via a fair and transparent
marketplace for financial products and services, including extending credit that provides a
pathway towards balanced economic growth and prosperity for all Malaysians should be lauded.
Based on the Economic Census 2016: Profile of Small and Medium Enterprises by the
Department of Statistics, Malaysia (DOSM), SMEs in Malaysia constituted 98.5% of the total
business establishments. Majority of the businesses were in services sector, mainly in
wholesale & retail trade, followed by manufacturing, construction, agriculture and mining &
quarrying.
Financial institutions are the major source of financing for SMEs. As at end-2017, growth in
financing to SMEs continues to be sustained above 5%, outstripping financing growth to
households and large corporates. The approval rate for financing applications by SMEs of 75%,
has also been consistently higher than that for all customers. The share of SME financing over
total business financing has steadily trended upwards to more than 50% from 38% in 2010. This
reflects an increased focus on SMEs as a strategic growth driver for financial institutions.
According to the latest bi-annual survey by SME Corporation Malaysia (SME Corp), 97% of SMEs
which applied for financing from FIs affirmed that they were able to obtain financing. Of this, 27%
were first time borrowers and 23% were without collateral and credit guarantee.
Nevertheless, our work is far from done. There are pockets of SMEs, particularly the start-ups
and those operating in new and high risk segments that continue to face challenges in obtaining
financing. When businesses have insufficient access to financial products and services, they
may be deprived of a chance to pursue new business opportunities, and as a nation, we are
deprived of the benefits of their potential contributions to the economy.
Over the past 45 years, CGC has played a crucial role in bridging the gap between financial
institutions and underserved SMEs via its innovative products and services. I commend CGC's
efforts for its latest venture in developing a dedicated online referral platform that connects the
banks and the SMEs, known as imSME. The imSME has the potential to transform the SME
Financing Landscape in the country, by matching SMEs' financing needs with suitable products,
thus reducing search costs and improving financing prospects for SMEs.
The implementation of imSME exemplifies the importance of technology in increasing SMEs'
financing access. SMEs are now able to submit financing applications 24 hours a day, without
the need to visit individual financial institutions to search for suitable product offerings. The
Platform also facilitates the partnership between key collaborators to deliver end-to-end solution
for SMEs that face higher hurdles to obtain financing. With the Financial Advisory Team in
imSME, unmatched or unsuccessful applicants will be further motivated to enhance their
capacity and capability with relevant trainings aimed at improving their chances to secure
financings or loans in the future.
The imSME complements existing initiatives in the SME financing ecosystem, such as BNM's
Fund for SMEs, alternative financing channels such as equity crowdfunding and P2P lending,
and the Small Debt Resolution Scheme.
BNM's Role to Encourage Financial Inclusion & SME Financing
SMEs is a pertinent component of Malaysia's economy. To reap their full potential, SMEs must
be continuously nurtured, guided and developed to become more competitive. The financial
services industry needs to play its role in continuously innovating, adapting to the digital
disruption and be the frontier in driving the national SME agenda, by ensuring adequate access to
financing.
Technology has the potential to transform financial services. Most notably it
dramatically reduces the costs of providing access to financial services, particularly in
remote locations and to small borrowers;
transforms credit decision-making ability by enabling lenders to tap into alternative data
sources. This has made it possible for people without collateral or credit histories to borrow;
and
simplifies finance and enabling providers to significantly improve the quality of customer
interactions.
There is a need to advance new ways to deliver financial services to the underserved, beyond
the provision of access points. In particular, the potential to effectively integrate the delivery of
financial services with the day-to-day activities of underserved segments remains largely
untapped. More effective utilisation of technology to improve customer engagements can also
increase confidence in the use of financial services.
To this end, Bank Negara Malaysia will continue providing an enabling regulatory environment
and active facilitation to increase the impact of technology on financial inclusion. This is being
driven through several strategic initiatives by the Bank, including the regulatory sandbox, adoption
of digital identities for SMEs and piloting the use of psychometric tools for SME credit
evaluations.
Role of the Financial Industry to drive efforts in SME Financing and Financial Inclusion
It has become increasingly important for the financial industry to come forward and address
related perceptions on SME financing matters. The industry should actively address issues
affecting access to financing by SMEs, by advocating the players to adopt best practices in
financing activities and lead initiatives to reform inefficient practices. Key strategic
recommendations should be made to the Government and regulators to enhance the SME
financing ecosystem, particularly in supporting new growth areas and increase contributions by
financial institutions to SME sector. In this regard, the financing ecosystem needs to be
complemented with comprehensive SME development strategies and initiatives to strengthen
SMEs' capacities and capabilities. This includes efforts towards training and retraining of
workers, adoption of technologies in business and operating process, as well as in governance,
finance and accounting practices.
The financial industry should also address any negative perceptions by having an effective
communication strategy and ensuring swift response time to SME customers, as these are vital
in maintaining the integrity and public image of financial institutions. Moving forward, it is
imperative and almost inevitable for financial industry to undertake measures to advance financial
literacy and capabilities of SME customers.
The commitment to better serve the SME segment would reinforce the critical role of the financial
industry in supporting the Government's development agenda in a well-functioning financial
system.
CGC has demonstrated that efforts to assist underserved SMEs can be achieved in a financially
sustainable manner through its suite of innovative financial products and services. Financial
institutions should also explore strategic partnerships with adjacent industries such as telcos and
fintechs to reduce market gaps and reliance on Government subsidies for the SMEs. Importantly,
the financing ecosystem needs to be complemented with a comprehensive SME development
ecosystem to nurture and elevate our SMEs towards greater size and competition.
I hope today's recognition and appreciation of FIs and CGC customers would spur both parties to
become more innovative, resilient and progressive. My heartfelt congratulations to all the winners
and may you continue to inspire and set benchmarks on SME financing landscape.