Bank Islam’s SME Smart ECO enables businesses to adopt green technology

Producers may use ECO’s funding as capex to produce green products, while users may apply for it to allow them to utilise green technology 


SINCE the Finance Ministry announced the country’s aim to achieve net-zero greenhouse gas (GHG) emissions by 2050 under the 12th Malaysia Plan (12MP) 2021-2025, many big corporate players started to take on low-emission and renewable-energy initiatives to support this goal. 

However, producing and using green technology — many of which are still new — could be costly. This hinders smaller businesses, as much as they want to support the government’s vision, from playing their part. 

Taking note of this, Bank Islam Malaysia Bhd (Bank Islam) on Nov 17 last year rolledout a new SME Banking product, named SME Smart Eco (ECO) — a financing programme to enable small and medium enterprises (SMEs) to finance their investments in green sustainability — whether as producers or users. 

Producers may use funding from ECO as capital expenditure (capex) to produce green products, while users may apply for the funding to allow them to utilise green technology. 

ECO is also available to finance working capital for the purchase of raw materials in green production. 

Bank Islam’s Director of SME Banking Rizal Mohd Yusof said the objective of developing ECO is to promote and facilitate the adoption of green sustainability practices by SMEs. 

“The programme is designed to encourage investments in the green technology industry, whether for the production of green products as a producer, or for purchasing green technology for adoption as a user. 

“It enables companies to acquire or purchase assets listed under the MyHijau Directory that have been verified as green technology assets by the Malaysian Green Technology & Climate Change Corporation (MGTC),” he told The Malaysian Reserve (TMR) recently. 

According to Rizal, ECO is developed as proof of Bank Islam’s commitment to ensuring that what it does will create a positive and lasting impact on the society, economy, environment and country (Pic courtesy of Bank Islam)

ECO also helps to widen the coverage of green services to include solar leasing activity. ECO is made eligible for Sdn Bhd or private limited company as well as sole proprietorship or partnership that falls within SME definition outlined by SMECorp. These businesses must be in operation for at least two years and be profitable for at least one out of the last two years.

The financing amount is up to RM5 million for users and up to RM15 million for producers. 

However, for sole proprietorship and partnership, the financing limit is capped at RM2.5 million only. 

The margin of finance is 100% working capital and up to 90% capital expenditure. 

Rizal noted that there are various benefits of the ECO programme to the SMEs that are producing and/or adopting green technolog y for their business. 

“ECO enables SMEs to purchase business inventory, equipment, or services relating to sustainable initiatives (for producers) and sustainable practices (for users). 

“Customers of ECO are also eligible to benefit from government tax relief, incentives and discounts under the green initiative,” he said. 

These include the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) under MGTC, as well as the extension of ITA for the purchase of green technology assets and ITE on the use of green technology services and systems under the Malaysian Investment Development Authority (MIDA). 

Among ECO’s contributions will include achieving the government’s target for Malaysia to be a net-zero emission economy by 2050, on sustainable energy including renewable energy (RE) and energy efficiency (EE); supporting the government’s initiative on green technolog y; and the public tender programme for Large Scale Solar Programme (LSSP) which allows companies from the private sector to build, own and operate solar plants to generate RE in large capacities. 

On the importance of environmental, social and corporate governance (ESG) for SMEs, Rizal said being the backbone of Malaysia’s economy, they play a key role in realising the nation’s ambition to achieve carbon neutrality by 2050. 

“There are also external pressures from more developed economies such as the European Union and the US who are influencing the adoption of ESG among smaller companies by placing embargo on those that are not ESG-compliant and are considering higher taxation or carbon credits when trading. 

“This means in the near future, SMEs will not be able to export if they do not embark on ESG,” he added. 

SMEs that are not adapting to the times may find their competitiveness and viability affected. 

“They will not be able to be part of the supply chain for bigger corporations, especially when it comes to exports. Subsequently, they will lose market share instead of expanding business,” Rizal elaborated. 

With financial institutions (FIs) integrating ESG to mitigate climate and environmental risks, SMEs will eventually face difficulties in getting not only capital from investors but also financing from not only development financial institutions (DFIs), but other FIs as well. 

Moreover, transitioning to ESG will create better opportunities relating to brand enhancement, customer engagement, partnering as/with new suppliers, attracting talent and improving financial performance. 

On how Bank Islam itself promotes sustainability within its company, Rizal said it is an investment for long-term growth and the future of the organisation including the bank’s stakeholders. 

The bank does this by recognising that ESG aspects must be taken into consideration when designing its products and how it conducts its operations or initiatives. 

“As a listed Islamic bank with ValuesBased Intermediary as the core business model, our priority is to achieve Maqasid al-Shariah, by emphasising communities’ wellbeing and the preservation of wealth and natural resources,” Rizal said. 

This is the growth strategy of the bank’s five-year business plan (LEAP25) which aims to offer Shariah ESG total financial solutions and to establish its leadership in social finance and digital banking. 

“The ECO programme is developed as a proof of our commitment to ensuring that what we do will create a positive and lasting impact on our society, economy, environment and country. 

“ECO also supports LEAP25 business plan which aims to double the financial group’s ESG-rated financing assets, which stands at 2.3% presently (highest in the industry) and sustain its industry-leading return on equity at above 15%,” he added. 

Transitioning to ESG will create better opportunities relating to brand enhancement, customer engagement, partnering as/with new suppliers, attracting talent and improving financial performance (Pic courtesy of Bank Islam)

The bank’s sustainability framework is also centred on the needs as stipulated within the United National Sustainable Development Goals, which is adopted for building an inclusive, resilient and sustainable future for the people and the planet. 

Quoting the Finance Ministry, Rizal said Bank Islam views Shariah-compliant financing as one of the key sectors of growth for Malaysia given that the country is ranked among the top halal exports in the world. 

Official statistics indicated that halal exports climbed 19% from RM30.5 billion in 2020 to RM36.3 billion in 2021, accounting for 2.9% of Malaysia’s overall exports. 

“Islamic finance ecosystem in Malaysia can be considered as mature and has great potential to support the development of the halal industry. 

“That being said, future prospects will be plenty,” he said. 

The earlier tabling of Budget 2023 had allocated RM92 million to develop the country’s halal industry, which addresses the needs for infrastructure development, promotion of halal products, compliance to halal certification and adapting to halal innovation, as well as many other incentives. 

Rizal added that as a full-fledged Islamic local bank, and the first to be listed in the Main Market of Bursa Malaysia, Bank Islam is mandated to support the growth of halal economy in Malaysia and has partnered with agencies such as the Malaysia External Trade Development Corp (MATRADE), MIDA, SME Corp and Halal Development Corp Bhd (HDC) to support the SMEs by providing access to financing. 

“Our products such as the Go Halal SME, SME Biz Grow, SME Exporter and SME Smart ECO are all designed to support the growth of SMEs and meet their ever-evolving needs. 

“It is imperative for SMEs to seize the opportunities and benefits made available by these agencies for their business growth and expansion whether locally and abroad,” he concluded. 

For more information on the ECO programme, visit a Bank Islam branch, email s[email protected] or visit 

  • This article first appeared in The Malaysian Reserve weekly print edition