SMEs are now able to secure financing


The majority of small and medium enterprises (SMEs) in Malaysia are now able to secure financings for their businesses, said Bank Negara Malaysia (BNM).

According to the central bank’s SME Finance Survey — conducted in the second quarter of 2018 — about 22% of the 1,529 respondents had applied for financing six months prior to the survey, where 94% of their applications were approved.

“About 13% applied to financial institutions with 91% of their total financing applications approved, while the remaining 9% applied to other sources — including Amanah Ikhtiar Malaysia and the National Entrepreneurial Group Economic Fund — with a 99% approval rate,” BNM stated in its 2018 Annual Report released yesterday.

It added that women-owned firms reported higher demand for financing (33% of them applied), but experienced a lower approval rate of 83%, mainly due to the lack of track record and insufficient documentation.

As such, BNM said most of these firms obtained unsecured financing from microfinance institutions, banking institutions and development financial institutions.

From the total respondents, about 44% of them were firsttime borrowers.

The main purposes of the overall financing applications were for purchase of assets (23%), working capital (22%) and starting a new business (19%).

On average, BNM stated that a majority of the applications (89%) was approved within one month and the funds were disbursed within the subsequent month (87%).

However, SMEs involved in automation (13%), innovation (16%), goods manufacturing (18%) and exports (13%) experienced higher rejection rates compared to the services and construction segments which recorded a below 10% rejection rate.

The rejected applications were mainly for the purchase of machinery and equipment, and information and communications technology tools, as well as for research and development.

The central bank said these projects could be deemed to have higher risk as they may involve movable and intangible assets with low salvage value in the event of commercial failure, and involve the use of new and untested processes with high uncertainty on returns.

Meanwhile, innovative firms cited insufficient documentation as a key factor for rejection.

Exporting and manufacturing firms that faced greater difficulty in obtaining financing were mainly those that were newly established with limited repayment track records.

There are also businesses that need financing, but did not apply (41%), as they were either cautious in taking on debt, unsure of their repayment capacity, or found the application process too difficult.

In addition, about 46% of the respondents stated that the financing products offered by financial institutions did not meet their business needs due to high financing costs (50%), insufficient financing amount (42%) and onerous documentation requirements (29%).

BNM added that the average financing rate that respondents were willing to pay was 3.88%, well below the average lending rates to SMEs of 6.18% at the time of the survey.

“The challenges raised by businesses in the survey pointed to opportunities for improvements in the on-boarding process of financial institutions (including documentation requirements) and financial management capabilities of SMEs to enhance their creditworthiness.

“New approaches to credit assessments by leveraging on technology and big data also present opportunities to increase access to financing for SMEs,” the central bank stated.