Managing working capital is vital for businesses of all sizes, but it is particularly critical for Small and Medium Enterprises (SMEs), which form the backbone of Malaysia’s economy. SMEs contribute significantly to job creation and economic growth but often face unique challenges, especially when it comes to accessing formal credit.

Unlike larger firms, which have greater access to traditional bank loans and structured financing options, SMEs are frequently forced to rely on internal funds or informal sources, such as family or friends, to sustain their operations. This dependency on informal financing makes their working capital highly vulnerable, directly affecting their ability to maintain liquidity, sustain operations, and achieve profitability.

The Alarming Rise of the SME Financing Gap

Globally, the unmet financing needs of SMEs are staggering, with the International Finance Corporation (IFC)estimating a gap of $5.2 trillion annually. This financing shortfall, equivalent to 1.4 times the current global MSME lending, highlights the difficulties SMEs face in obtaining the credit necessary to manage their working capital. The problem is especially acute in regions like Asia and the Pacific, which accounts for 46% of the global financing gap, making countries like Malaysia a key focus area for addressing these issues.

Figure 1: Formal MSME Finance Gap in Developing Countries

Is It Time to Rethink SME Financing Options?

According to a Federal Reserve study, small businesses successfully get bank loans only 45% of the time, compared to 72% for larger companies. Because of this, many small businesses have to rely on their own savings or turn to costly alternative financing options to meet their funding needs. 

Figure 2 : Sources of Financing for SMEs Globally

Modern Small and Medium Enterprises (SMEs) are increasingly turning to alternative financing sources to keep their businesses running. Research shows that 43% of SMEs receive support from friends and family, 30% rely on credit unions, 28% use personal funds, and 27% seek help from business partners. This heavy dependence on non-traditional funding highlights the urgent need for a more inclusive and adaptable financial system. Such a system should be designed to address the unique challenges SMEs face and provide effective solutions to bridge their long-standing financing gaps.

A study shows that 92% of SMEs are open to switching their lenders to access better services, demonstrating a strong demand for financial solutions that are more accessible, efficient, and tailored to their specific needs. This highlights the growing importance of user-friendly and flexible financing options for SMEs.

How Fintech is Revolutionising Access to Working Capital for SMEs

From digital financing platforms and peer-to-peer (P2P) financing to the use of alternative data for credit scoring, fintech is enabling SMEs to access the capital they need to maintain cash flow, invest in growth, and stay competitive in the market. Let’s explore the available options.

The Bottom Line

Fintech has emerged as a game-changer for businesses, especially for Small and Medium Enterprises (SMEs), by offering more accessible, flexible, and efficient financial solutions compared to traditional banking methods. With challenges like limited access to credit, lengthy approval processes, and high interest rates from conventional lenders, SMEs are increasingly turning to fintech platforms for quicker, hassle-free financing options.

Contract financing, secure lending, and micro financing are all fintech-driven solutions that cater to the diverse needs of SMEs, enabling them to bridge their working capital gaps. By leveraging technology, these platforms offer alternative financing that is more inclusive, reducing the barriers that have traditionally kept SMEs from obtaining the capital they need to grow.

Interested to learn more about our SME Financing Options?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

The Malaysian Budget 2025 is primed to unlock fresh opportunities for Small and Medium Enterprises (SMEs), underscoring the government’s commitment to this critical economic sector. In past budgets, SMEs have benefited from funding support, digitalization programs, and financial incentives designed to drive growth and innovation. Unveiled on October 18, 2024, by Prime Minister Datuk Seri Anwar Ibrahim, Budget 2025 signals a major shift in Malaysia’s economic direction. With a record-setting RM421 billion allocated—the largest budget in the country’s history—this plan combines a strong vision for sustainable growth with careful financial planning, setting a new standard for Malaysia’s economic goals.

SMEs and startups are set to gain expanded access to growth capital through initiatives like loan guarantees, direct financing, and targeted funds for digitalization and halal sector development. Here’s a look at the key highlights making 2025 a golden year for startups and SMEs.

Business financing guarantees

Bank Pembangunan Malaysia Berhad is allocating RM6.4 billion to support local infrastructure development in sectors such as digitalization, tourism, logistics, transportation, renewable energy, and energy transition. 

Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP) will continue to back SME financing up to RM20 billion, with an additional RM5 billion guarantee for Bumiputera SMEs. This initiative helps SMEs, including those facing collateral challenges, secure financing to expand operations and boost competitiveness. 

Additionally, Bank Negara Malaysia (BNM) will allocate RM3.8 billion to aid SMEs in digitalization, automation, and sustainable practices, focusing on the agrifood sector.

Golden Year for Startups

For those looking to start a business in Malaysia, KWAP, the statutory body managing public employee pensions, will allocate RM1 billion over four years to enhance the local startup ecosystem through Dana Perintis, a fund for early-stage startups. 

The government has also earmarked RM65 million for Cradle Fund, which supports startups with potential for regional and global growth. 

To stimulate investments in startups, Khazanah, Malaysia’s sovereign wealth fund, will establish a National Fund-of-Funds (NFOF) next month, with a total allocation of RM1 billion over four years. 

Additionally, Budget 2025 includes RM15 million in matching grants to strengthen connections between government-linked companies (GLCs) and local startups via an Innovation Accelerator program managed by Cradle.

Tax deduction

Multinational enterprises (MNEs) incurring expenses up to RM2 million can receive a double tax deduction for three consecutive years. MNEs investing in local vendors will enjoy income tax deductions on their joint venture investments, while local vendors will benefit from an outcome-based tax incentive package. 

Additionally, a matching investment fund of RM100 million will be available through an equity crowdfunding platform to support local vendor development, especially in the electrical and electronics engineering, specialty chemicals, and medical device sectors.

Exemptions on Stamp Duty

To broaden access to alternative loans and financing, the government is proposing a stamp duty exemption on loan or financing agreements executed by MSMEs with investors through the Initial Exchange Offering (IEO) platform. This exemption will be valid from January 1, 2025, to December 31, 2026. Additionally, the loan or financing limit under the Micro Financing Scheme for stamp duty exemption purposes will increase to RM100,000 from its initial RM50,000, effective 2025.

These measures will significantly benefit startups and SMEs in Malaysia by reducing the overall cost of financing, making it easier for them to secure the capital they need for growth and innovation. The increased loan limit under the Micro Financing Scheme will also provide more flexibility and support for emerging businesses, allowing them to invest in critical areas like technology, talent, and infrastructure.

Advantages for Halal Businesses

If you operate a halal-compliant business, you can take advantage of specialized financing options from Bank Pembangunan Malaysia Berhad (BPMP) and SME Bank, with nearly RM600 million available. 

With an allocation of RM20 million, the Malaysia External Trade Development Corporation (MATRADE) has been entrusted with enhancing capacity development for halal enterprises and boosting the competitiveness of halal businesses.

Additionally, the government, through SJPP, is offering guarantees of up to 80% on halal SME loans, amounting to a total of RM1 billion.

Empowering SMEs in the Export Market

Malaysia’s export trade is thriving, with total trade from January to September 2024 increasing by 10.2%, creating exciting opportunities for local businesses to enter global markets. In response, Khazanah is launching a RM1 billion Mid-Tier Company Programme aimed at enhancing local company capabilities. 

Additionally, for exporters looking to expand internationally, EXIM Bank has allocated RM750 million under the Exporter Sustainability Incentive Scheme to help broaden their reach. To further support Malaysian exporters venturing into new markets in Africa, Latin America, and the Middle East, MATRADE will provide RM40 million in reimbursement grants.

The Bottom Line

In wrapping up, it’s clear that Malaysia’s Budget 2025 is a game-changer for small and medium enterprises (SMEs), startups, and halal businesses. The government’s proactive stance is evident in the substantial funding and innovative tax incentives designed to foster growth and resilience in the local economy. From the RM1 billion Mid-Tier Company Programme to the RM750 million Exporter Sustainability Incentive Scheme, these initiatives empower businesses to break into new markets and enhance their competitiveness. As we move towards a more digital and inclusive economy, the future looks bright for Malaysian entrepreneurs ready to seize these opportunities and drive sustainable growth.

Want to boost your business with Supply Chain Financing in Malaysia? Explore how Supply Chain Financing can enhance your financial strategy today!

Interested to learn more about our SME Financing Options?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

In a region with over 650 million people, ASEAN faces a significant challenge: only 27% of its population currently has access to banking services. As financial inclusion becomes a priority, digital technology, especially fintech, is emerging as a crucial solution. Malaysia is leading the charge in this area boasting at least 549 fintech companies, particularly after the Covid-19 pandemic accelerated the shift toward digital services.

Malaysia’s fintech sector has seen rapid growth, largely driven by strong government support. In 2015, the Securities Commission Malaysia (SC) launched the Alliance of Fintech Community (aFINity) to boost the fintech ecosystem. Since then, P2P financing has raised RM5.96 billion(Figure 1) across 85,793 campaigns, with 15% of the funds raised through Shariah-compliant campaigns. In 2023 alone, total funds raised jumped 32% to RM2.09 billion, up from RM1.58 billion in 2022, and campaigns grew to 31,002 from 24,455 the previous year.

Figure 1: Total funds raised

Transformative Technologies Revolutionising the Fintech Landscape

New digital technologies are driving significant changes in the financial sector, leading to the decentralisation and disintermediation of economic transactions. This digital transformation in financial services aligns with advancements in telecommunications and computing technology. Enhanced data storage capabilities, automated analytical tools, and increased computing power are all contributing to improved efficiency and reduced costs across the industry(Figure 2).

Figure 2 : Transformative Technologies Revolutionising the Fintech Landscape

These technological advancements have particularly benefited borrowers, making peer-to-peer (P2P)Financing a more accessible funding option compared to traditional loans from financial institutions. For individuals with low credit ratings or those seeking unconventional business financing, P2P financing can be an attractive alternative. Additionally, P2P financing often features lower interest rates, driven by heightened competition among lenders and reduced origination fees. 

In Malaysia, the wholesale and retail trade sector, along with the repair of motor vehicles and motorcycles, remained the largest sector served in 2023(Figure 3), with total funds raised amounting to RM1.12 billion. This trend further highlights the pivotal role of fintech in providing essential funding across various industries. 

Figure 3: Top 5 sectors by total funds raised

The Rise of Fintech in P2P Financing in Malaysia 

P2P financing is growing fast in the Asia-Pacific, especially in Malaysia. As digital services expand, it offers a simpler alternative to traditional banking by directly connecting borrowers and lenders. This often leads to lower interest rates and more flexible loan terms, making it an attractive option for individuals and small businesses. 

Figure 4: P2P Financing Investor Participation in the year 2022-23.

Figure 4 shows that the total number of P2P investors in Malaysia has grown to over 34,000 since its launch. In 2023, there was a small drop of 3%, with investors decreasing to 15,599 from 16,080 in 2022. Interestingly, 20% of investors in 2023 were first-time users on the platform.

Investors in Malaysian P2P Financing platforms can benefit from lending to SMEs with lower-risk financial needs, especially through invoice financing. Fintech advancements allow these platforms to effectively assess risks and set interest rates based on the likelihood of borrower repayment. While SMEs may seek loans for various purposes—like working capital or expansion—invoice financing is generally safer, relying on expected payments from customers. P2P platforms clearly outline different loan risk levels, helping investors understand their risk exposure and potential returns. By diversifying investments across various risk categories, investors can reduce loss risk while still achieving attractive returns, allowing them to support lower-risk SMEs while maintaining solid profit potential.

The Future of P2P Financing: How Fintech is Changing the Game

Fintech is changing peer-to-peer (P2P)Financing in a big way. These companies are using new technologies to make theFinancing process faster and easier for everyone. Tools like big data analytics, artificial intelligence, and blockchain help improve the safety, clarity, and precision of P2P Financing platforms.

These innovations not only enhance the experience for users but also build more trust and credibility in the P2P Financing industry. As these technologies continue to evolve, we can expect even greater improvements in how people lend and borrow money online.

Figure 5: Malaysia Fintech Market forecast

The Malaysian fintech market is expected to grow significantly(Figure 5), with the transaction value projected to increase from USD 46.63 billion(RM 194.03 billion) in 2024 to USD 96.09 billion(RM 399.10 billion) by 2029. This growth represents a compound annual growth rate (CAGR) of 15.56% during this period.

The fintech ecosystem in Malaysia is developing rapidly, with more companies and established businesses looking for new ways to work together and create innovative solutions. This growth will benefit a wide range of clients and include various services like digital payments, alternative finance, wealth management, and blockchain technology.

Additionally, the Malaysia Co-Investment Fund (MYCIF) is set to receive an extra USD 8.76 million(RM 36.51 million) to improve price discovery and increase liquidity in the peer-to-peer (P2P) and equity crowdfunding (ECF) markets. This funding boost will raise the total available under MYCIF to MYR 300 million, according to the Securities Commission (SC). This funding plays a crucial role in supporting fintech companies and micro, small, and medium enterprises (MSMEs).

Interested to learn more about our P2P Investment Platform?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

CapBay was honoured to be part of the highly anticipated InnoEx conference in Vietnam, having been shortlisted as one of the Top 50 international startups under the Startup Wheel International Track 2024. Startup Wheel (as a part of the InnoEx conference) is the largest startup competition in Vietnam and this allowed us to present our innovative solutions to potential partners and collaborators, culminating in the final pitching sessions during InnoEx.

Held on August 22-23, 2024, in Ho Chi Minh City, Vietnam, InnoEx is a premier platform that brings together innovators, entrepreneurs, and industry leaders to showcase cutting-edge technologies and foster collaboration. As a leading supply chain financing company, CapBay’s presence at InnoEx marked a significant milestone in our ambition to drive regional supply chain and trade financing solutions for Small and Medium Enterprises (SMEs) in the Southeast Asian region.

How CapBay Plans to Help SMEs in Vietnam and Drive Regional Supply Chain Financing

At InnoEx, CapBay showcased our innovative supply chain financing solutions, illustrating how our technology-driven approach effectively addresses challenges in supply chain financing. 

Invoice Financing

Convert unpaid invoices into immediate funds to boost cash flow and enable reinvestment without waiting for payment terms.

Revolving Credit

Access flexible credit lines efficiently through our technology platform, ensuring that SMEs can manage working capital and obtain funds as needed.

Inventory Financing

Finance inventory purchases and optimise stock management with our technology-driven platform, helping businesses streamline their supply chain without tying up resources.

Pioneering Innovation and Sustainability in Supply Chain Financing for Southeast Asian SMEs

CapBay is dedicated to driving innovation and sustainability within the supply chain financing sector to create a more efficient and sustainable supply chain. Our participation at InnoEx had several key objectives:

Reducing the Financial Burden on SMEs

SMEs are crucial to Southeast Asian economies but often face financial hurdles that limit their growth. CapBay’s innovative financing solutions are designed to ease these burdens by providing accessible and affordable resources, helping SMEs thrive and expand sustainably without financial constraints.

Utilising Technology for Sustainability

In today’s world, sustainability is not just an option but a necessity. CapBay is committed to aligning our financing transactions with the United Nations’ Sustainable Development Goals (SDGs) as part of our ongoing dedication to Environmental, Social, and Governance (ESG) principles. A majority of our transactions already meet these criteria, and we are continually working to increase the share of sustainable financing within our portfolio. By embracing digital tools and innovative approaches, we help businesses operate more efficiently while also supporting global sustainability efforts.

Sharing Success Stories at InnoEx

We were excited to share our success stories and case studies at InnoEx, highlighting the positive impact our solutions have had on businesses. These real-world examples demonstrate how our approach fosters both business growth and sustainability, aiming to inspire others to join us in advancing the supply chain financing sector.

Supporting SMEs in Vietnam and Beyond

CapBay is focused on supporting SMEs in Vietnam and throughout the Southeast Asian region. Our mission is to drive a regional supply chain and trade financing solution that benefits businesses of all sizes. By implementing our innovative strategies, we aim to create a robust and sustainable cross border financial ecosystem that supports economic growth and development across the region.

The Bottom Line

Our time at InnoEx was truly rewarding, highlighting CapBay’s role in transforming supply chain financing with our innovative and sustainable solutions. We had the opportunity to connect with industry leaders, explore potential partnerships, and present our cutting-edge offerings to a new market audience. We extend our sincere thanks to everyone who visited our booth and participated in our sessions. Your engagement and support are instrumental as we continue to drive positive change in the financial sector.

For more information about CapBay and how our innovative solutions can transform your supply chain financing, visit our website or reach out to us at [email protected].

Take charge of your cash flow to accelerate your business growth today!

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest or apply to get fund. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

CapBay Thailand is a member of the Thai Factoring Association, and we have participated in a press conference together with the association to promote both domestic and international factoring on the 1st August 2024. Source.

“Factoring”: A short-term working Capital solution helping SMEs gain access to funds. Currently, over 3 million Thai entrepreneurs face limited funding access, with less than 50% of their need.

In an era where the economy is facing tough times, market are filled with products, yet they remain quiet. Vendors and small to large entrepreneurs alike are voicing their concerns, as “Chinese products” continue to flood nearly every Thai market. With their massive production capacity and lower cost, Chinese products are often priced more competitively than their Thai counterparts. Without trade barriers or protective measures, a price war is inevitable. The question now is, how can Thai products compete?

The COVID-19 crisis has already made things tough, but the current economic challenges are even more daunting. Many small entrepreneurs had to close their factories. While the government has introduced measures to support debtors and SMEs, such as the “100 billion baht Soft Loan,” the policy, though well-intentioned, is challenging for newly established medium, small, and micro-entrepreneurs to access. The strict conditions imposed by banks make it difficult for SMEs that aren’t deemed “creditworthy” to secure these funds, leaving many.

“Believe it or not, according to the Bank of Thailand, there are currently over 3 million SMEs in the country, yet less than 50% have access to capital. This statistic highlights many issues. Each year, the total loan amount is  more than 300 billion baht. If the government prioritizes promoting factoring loans to assist entrepreneurs who still have limited access to funding, it would be a significant opportunity for SMEs, addressing many of the challenges faced by businesses in the country. Factoring is specifically tailored to support business growth,”

Mr. Akarwit Suksai, President Of The Thai Factoring Business Association (TFA)

The “Thai Factoring Business Association” was established on October 26, 2000, with the aim of promoting and supporting the factoring industry. The Association focuses on developing business standards, educating the public about the factoring business, and protecting the interests of its members. It also collaborates with both government and private agencies. Currently, the Association has 13 members, including 4 commercial banks and 9 non-bank financial institutions.

Understanding the “Factoring Business”

“Factoring business” involves providing short-term working capital loans with terms not exceeding 180 days.

Advantages of Factoring

Factoring “interest” typically starts at MRR+, reflecting the difference in the interest rate charged. It’s important to note that factory loans are strictly business-oriented.

There’s also “International Factoring,” a financial service that allows businesses to manage cash flow by selling accounts receivable (invoices) to third parties at a discount. This transaction occurs internationally, such as when the seller is in Thailand and the buyer is abroad. This approach provides instant cash flow, reduces the risk of non-payment from international customers, and enhances competitiveness.

The key advantage of “International Factoring” for Thai entrepreneurs is that it is easy to apply for and withdraw funds without requiring collateral. Entrepreneurs can access up to 90% of the funds within one day, with interest charged only for the actual usage period.

 “The key focus moving forward is to enhance the Association’s public relations efforts while actively reaching out to small entrepreneurs who currently lack access to capital. The Association is dedicated to genuinely supporting these entrepreneurs and hopes that these efforts will help increase liquidity, enabling Thai business to grow and thrive.”

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Looking for financing for your business based in Thailand? Let us help!

Grasping the ins and outs of business finance is essential for the success of small and medium enterprises (SMEs). It’s all about managing money wisely and making smart decisions on borrowing and generating cash flow. Think of finance as the fuel that keeps your business running. Without effective financial management, covering daily expenses, expanding your business, or weathering tough times becomes a real challenge.

SMEs in Malaysia have a variety of options to manage their finances, ranging from traditional loans to innovative alternatives like P2P Financing and merchant cash advances. Each option offers unique benefits depending on the business needs and goals. That’s why understanding the basics of business finance is very important.

Understanding SME Borrowing Options

Before diving into applying for finance to boost your business, it’s essential to lay some groundwork. Start by asking yourself why you need the funds. Is it for expansion, inventory, or to smooth out cash flow gaps? Understanding the purpose will help you choose the right financing option. Additionally, you should be aware of the overall challenges to ensure you’re selecting the right financing option. To learn more about these barriers and how to overcome them, check out “Breaking down barriers: The Significance of Financing Reforms for Small and Medium-Sized Enterprises”.

Now let’s get back to the borrowing options with pros and cons to make sure you don’t miss out on anything that we know.

Term Financing

Term financing refers to traditional loans featuring fixed repayment terms and interest rates, ideal for long-term financing needs like purchasing equipment, expanding a business, or covering operational costs. Term financing can be either unsecured (based solely on the borrower’s creditworthiness) or secured (backed by collateral). If you need start-up capital and have a strong credit history, you may opt for unsecured term financing to avoid risking your assets. This can be a cost-effective option that provides a lump sum of cash upfront for business growth

 

Invoice financing

Invoice financing offers a swift and hassle-free short-term finance solution for businesses aiming to enhance their cash flow. This can be a good choice for businesses waiting for customer payments and needing quick access to cash. Data reveals that 54% of SMEs encounter late payments, with an average delay of 6 days. Moreover, 20% of invoices face a two-week delay, while 33% exceed a month, and 20% surpass sixty days. 

Equipment Financing

Businesses can secure loans for investing in or upgrading equipment and assets, with the equipment or asset serving as collateral. This financing can be used for various business needs such as office furniture, medical equipment, farm machinery, tools, kitchen appliances, and more.

Limiting the support you can receive can make you go out of business

Starting a new business can be tough, especially in the beginning. New owners often face the daunting task of finding capital, reliable suppliers, and customers, all while trying to make ends meet.

The failure rate of SMEs in Malaysia is concerning, with 60% of new SMEs closing their doors within five years of starting. Moreover, only 4 out of 10 SMEs manage to overcome the challenges of growth successfully. That’s why it’s crucial to avoid making these mistakes.

A prevalent mistake is not seeking support due to “Time Constraint” since time is a luxury many of us don’t have. You might also believe that your business doesn’t need to depend on grants, but the reality is harsh: 20% of businesses fail in their first year, and fledgling businesses require all the safety margins they can get. Therefore, financial support is actually very important.

Figure: Alternative Market Forecast in Malaysia

That’s why the adoption of alternative lending is projected to rise steadily in the coming years, with a compound annual growth rate (CAGR) of 21.5% expected between 2023 and 2027. This trend will see the alternative lending market surge from US$349.4 million in 2022 to a projected US$1.03 billion by 2027 in Malaysia.

The Bottom Line

Choosing the right financing option for your business boils down to two essential factors: understanding your needs and being aware of the available options. It’s not simply about accepting any loan that comes your way.

Certain loans are better suited for addressing cash flow challenges, while others can facilitate expansion or investment in new equipment. Interest rates, repayment terms, and eligibility criteria can vary significantly.

 Therefore, it’s crucial to conduct thorough research. Analyse what each option offers and compare them against your objectives for the additional funds.

Take charge of your cash flow to accelerate your business growth today!

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

Small and medium-sized enterprises (SMEs) might not always make the headlines, but they are the unsung heroes of economies worldwide. From bustling metropolises to remote villages, SMEs play a pivotal role in driving economic growth, employment, and export revenues, especially in emerging markets. 

Picture this: a local family-owned bakery in a quaint town, a tech startup in a bustling city, or a handicraft workshop in a rural village. What do they have in common? They’re all SMEs, and they’re all contributing significantly to their respective economies.

In a recent survey across 20 key Asian countries, SMEs emerged as dominant players, constituting 96% of all enterprises and provide employment to 62% of workforces across these 20 countries and contributing an average of 42% to gross domestic product (GDP) or manufacturing value-added. This assertion also holds true in Malaysia whereby 97.4%  of businesses fall under the category of SMEs.

A closer look at the Challenges Faced by SMEs in Accessing Financing

SMEs are vital to Malaysia’s economy, driving employment, innovation, and growth. Nevertheless, they encounter substantial barriers that impede their progress and growth, as accessing essential financing is not always straightforward for them. Let’s delve into the specific challenges faced by these enterprises in Malaysia.

Limited Collateral

The insufficient collateral among SMEs not only leads to higher interest rates on loans but also poses a significant barrier to expanding SME credit. Traditional financial institutions, such as banks, often require collateral to secure loans, yet many SMEs struggle to provide tangible assets or property, especially during their early stages. This limitation severely limits their ability to access loans and lines of credit, hindering their growth potential.

In stark contrast, multinational companies encounter a much lower rejection rate , with only 7% of their financing requests being declined. This discrepancy underscores the challenges SMEs face in securing financing compared to larger corporations. 

Businesses Are Deemed Too New

The youthfulness of a business often becomes a hurdle when seeking traditional financing, as SMEs are frequently informed that their venture is too new. Banks typically mandate a business to have a minimum operational history of two years to be eligible for loans. This requirement stems from the necessity for a business to demonstrate its potential for success and sustainability over a defined period. Establishing a track record of success is vital, as it signifies profitability and reduces the perceived risk for lenders.

Figure: New SME and total Business Lending Annual

However, this poses a dilemma for new businesses in need of capital to kickstart their operations. Figure 1 illustrates the disparity between the required total business lending and the actual amount lent to new businesses. Obtaining loans from banks as a small business proves challenging, underscoring the importance of seeking alternative funding avenues.

Regulatory Barriers

In many developing nations, banks often lack robust internal ratings-based models due to data scarcity related to SME exposures. This leads to SMEs receiving unfavourable external credit ratings, resulting in significantly higher financing costs compared to larger enterprises. Credit rating models employed by agencies tend to treat both large companies and SMEs similarly, despite SMEs’ constrained financial depth and individualised corporate governance structures. This discrepancy significantly inflates the cost of funds for financial institutions, as risk weights for SMEs can climb to 100% or higher, compared to a manageable 20% for higher-rated borrowers. As a result, SMEs face a substantial financial burden, hindering their ability to compete effectively in the market.

Another significant concern arises from the implementation of liquidity and leverage requirements in the financial sector following the global financial crisis. Post-crisis financial regulations demand high-quality assets, posing challenges for SMEs due to their low credit ratings and underdeveloped capital markets in emerging economies. 

Insufficient Use of Information Communication Technology in SMEs

In today’s dynamic business landscape, the integration of information and communication technology (ICT) has become more than just a choice – it’s a necessity. However, despite its undeniable importance, many businesses in Malaysia, particularly those in rural areas, still lag behind in adopting ICT. This presents a worrisome scenario, especially for SMEs that overlook the adoption of digital technologies. Without embracing ICT, SMEs risk limiting their visibility to larger markets and jeopardising their long-term sustainability. According to studies,  the detrimental impact of limited ICT access on SMEs are hindering their ability to innovate and thrive in today’s competitive business environment in Malaysia.

Facilitating SME Financing Through FinTech and Government Support

Given the pivotal role of SMEs in Asian economies, it is imperative to explore avenues for ensuring their access to stable financing. The emergence of FinTech has brought about a transformative shift in SME financing, introducing groundbreaking solutions that simplify procedures and offer seamless access to capital. Platforms such as peer-to-peer lending, invoice financing, and crowdfunding have revolutionised the landscape, empowering SMEs with new avenues for funding. By leveraging these digital platforms, SMEs can overcome traditional barriers to finance and access capital more efficiently.

Numerous government and donor programs have been established in many countries. Among these initiatives is the credit guarantee scheme (CGS), designed to bridge the disparity between SME finance supply and demand. This public guarantee scheme serves as a strategic tool to alleviate the challenges faced by SMEs in accessing financing.  

Bank Negara Malaysia, established in 2009, oversees the Credit Bureau managing the Central Credit Reference Information System (CCRIS). It regulates financial institutions to ensure stability, advocating for prudent credit policies and professionalism in credit risk management. Providing CCRIS data to banks facilitates quicker, informed lending decisions, promoting responsible lending and strengthening Malaysia’s financial system. This strategy fosters a healthier and more robust financial ecosystem in Malaysia, supporting economic growth and stability.  

The Bottom Line

The increasing reliance on digital platforms for financial transactions has significantly driven the adoption of online lending and digital banking services, enhancing SME financing accessibility and efficiency. Governments globally have introduced policies like loan guarantees and tax incentives to facilitate SME financing. However, the success of reform strategies depends on assessing the financial system and economy’s readiness. Tailored initiatives are crucial to address specific challenges and opportunities, fostering a dynamic and inclusive economic landscape, and strengthening SME growth and resilience.

Take charge of your cash flow to accelerate your business growth today!

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

In today’s rapidly evolving business environment, enterprises are consistently on the lookout for strategies to enhance operations, reduce expenditures, and improve efficiency. One key factor in achieving these goals is effectively managing the movement of goods and services from suppliers to customers.

Supply chain finance encompasses a range of strategies aimed at enhancing cash flow management. This creates a mutually beneficial scenario for both the buyer and supplier. The buyer enhances its working capital efficiency, while the supplier generates extra operational cash flow, thereby reducing risk throughout the supply chain.

Emerging Trends in Supply Chain Finance

In recent discussions with global traders pertaining to supply chain finance initiatives, Global Business Intelligence has uncovered several noteworthy emerging trends. Let’s delve into the prevalent trends currently shaping the landscape:

Embracing Digitalisation

Artificial intelligence (AI) and machine learning (ML) are already pivotal components of industrial automation in Malaysia, and the same applies to supply chain finance. A key use of AI in supply chain finance involves invoice processing. In conventional methods, invoices undergo manual review, and data entry into systems is also done manually. This approach is not only time-intensive but also susceptible to errors.

Roughly 81% of internet users in Malaysia engage with digital services, and businesses are embracing technology at an accelerated rate compared to previous years. One out of every three digital merchants expressed the belief that without digital platforms, they would not have survived the pandemic.

With MSMEs comprising 98.5% of Malaysia’s businesses, government initiatives and policies like The Malaysia Digital Economy (MDEC) Blueprint are promoting the adoption of digital technologies and fintech solutions. This drive is speeding up the digitisation of supply chain finance processes.

Alternative funding sources are gaining prominence

Fintech startups and specialised lending platforms are reshaping supply chain finance by offering Small Business (SMB) IT solutions, like invoice factoring and trade finance, tailored to their needs. In Malaysia, the financing landscape has transformed with the rapid growth of Equity Crowdfunding (ECF) and Peer-to-Peer (P2P) platforms. In 2022, these platforms secured over US$1.6 billion, marking a 26% year-on-year increase. Since 2018, they’ve helped 7,218 MSMEs raise RM4.4 billion collectively.

Notably, ECF and P2P platforms in Malaysia have outpaced traditional venture capital (VC)-backed funding. This shift underscores a departure from conventional fundraising methods, highlighting the rising prominence of alternative financing mechanisms.

This trend reflects Malaysia’s readiness to embrace innovative financial solutions, distinguishing it from other emerging economies in Southeast Asia where traditional VC-backed fundraising prevails. The success of ECF and P2P platforms signifies a shift towards more inclusive and accessible financing options for SMBs, fostering a dynamic and resilient business ecosystem.

Sustainability Moves into the Spotlight

The growing emphasis on Environmental, Social, and Governance (ESG) factors in business operations globally underscores the urgency for greener and socially responsible practices, given that up to 80% of carbon emissions originate from global supply chains.

In Malaysia, both public and private sectors are actively promoting sustainability. Over 90% of financial institutions offer sustainable financing products, as per the Joint Committee on Climate Change (JC3) Report. Government initiatives such as the 12th Malaysia Plan (12MP) prioritise economic growth alongside sustainability goals, including carbon neutrality by 2050 and the promotion of green financing and circular economy practices.

With a strong foundation in sustainable finance and ambitious government targets, Malaysia is poised to advance its position as a regional leader in sustainability through innovative financing mechanisms.

A Brighter Future of Supply Chain Financing

In response to the challenges posed by the COVID-19 pandemic, businesses globally are increasingly seeking financial assistance to revitalise their supply chains. This has placed considerable pressure on fintech companies to extend support to firms that have encountered supply chain disruptions over the past year.

The World Supply Chain Report 2023 by BCR Publishing highlights a remarkable 21% year-on-year surge in global volumes within the Supply Chain Finance (SCF) sector, reaching a significant US$2,184 billion. Simultaneously, funds in utilisation have seen a robust 20% year-on-year increase to US$858 billion. Notably, this upswing is underpinned by substantial growth in Africa and Asia, where volumes have surged by 39% and 28%, respectively.  

This heightened demand for supply chain finance underscores the critical role it plays in business continuity and resilience, particularly in the face of unforeseen disruptions like those witnessed during the pandemic. Traditional banks, while historically dominant in this arena, are increasingly facing competition from fintech and other innovative lenders, who are leveraging dynamic discounting, peer-to-peer (P2P) lending, and the emergence of challenger banks to streamline transactions and meet evolving market needs.  

The Bottom Line

Supply chain finance serves as a valuable tool for businesses in cash flow management. It simplifies timely bill payments, alleviating concerns about handling additional expenses later. SCF enhances financial flexibility for companies, enabling access to capital as required, without compromising security or stability.

Ready to take control of your cash flow and fuel your business growth? Reach out to us today to begin this exciting journey together. Our team of experts is here to guide you every step of the way, ensuring you unlock your full business potential.

Take charge of your cash flow to accelerate your business growth today!

*This article is not meant to recommend CapBay P2P products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

• P2P fundraising saw a 38% increase in 2022, raising RM1.58 billion across 24,455 campaigns as announced in Securities Commission Malaysia Annual Report 2022
• CapBay played a role in the growth, having finance RM1 for every RM4 raised through P2P financing in 2022
• Government reinforces commitment to bridging the financing gap through MyCIF and DIGID initiatives

KUALA LUMPUR, 27th March 2023 – Peer-to-peer (P2P) financing in Malaysia has continued to experience strong growth, with a 38% increase in financing amount for a total of RM1.58 billion across 24,455 campaigns in 2022 as reported in Securities Commission Malaysia’s recently announced Annual Report 2022. This comes on the back of a surge in the number of issuers with an 88% increase, highlighting the strength of alternative financing as a viable source of funding for the underbanked Small and Medium Enterprises (SME) segment.

Continued headroom for alternative financing growth

While adoption rate continues to improve, there are still opportunities for alternative financing such as equity crowdfunding (ECF) and P2P financing as the penetration rate in Malaysia is still relatively low. In 2020, ECF and P2P only contributed <1% of the economy when compared to traditional financing at around 88%, lagging behind neighbouring countries such as Indonesia and Singapore, signalling potential for future growth.

CapBay’s Co-founder and CEO, Ang Xing Xian, concurs that the growth opportunities within P2P financing has not reached its full growth potential. “The P2P financing industry has been vital in the Covid-19 recovery, extending a lifeline to businesses who require urgent working capital assistance. As we move towards a post-pandemic economy, the industry’s continued growth is a testament to the viability of P2P financing. CapBay is proud to have played a role in the growth, having financed RM1 for every RM4 raised through P2P financing in 2022, demonstrating our commitment to supporting underbanked SMEs.”

Ang Xing Xian, Co-Founder and CEO of CapBay

P2P financing campaigns outside the Klang Valley has doubled

Further growth opportunities exist for niche sectors such as agriculture, real estate, and healthcare that have shown impressive growth in 2022, but still lag behind sectors such as wholesale and retail trade; repair of motor vehicles and motorcycles that represented over 58% of financing raised. Furthermore, while the number of campaigns outside the Klang Valley has doubled, 54% of issuers are still located within Kuala Lumpur and Selangor.

In 2022, one of the most popular P2P financing products was invoice financing at 21% of the total investment notes, which is typically a lower risk product. “CapBay’s focus is in the lower risk segment, having contributed over 2,200 invoice financing notes in 2022 alone. We remain committed to maintaining prudent risk management practices, and will continue to prioritise lower risk products to safeguard both our investors and issuers,” said Xing Xian.

Government initiatives reflect commitment to developing alternative financing

Recognising the key role of alternative financing, the Government has continued initiatives to bridge the financing gap. Within Budget 2023, the Government committed RM40 million to the Malaysia Co-Investment Fund (MyCIF). According to the recent MyCIF report, the funds raised by P2P and ECF operators have increased sixfold since 2018 with the support of MyCIF. MyCIF will also introduce new initiatives to increase their co-investment ratio into ESG (environmental, social, governance) related campaigns and extend existing initiatives for the agriculture sector.

The Digital Innovation Fund (DIGID) was also introduced in Budget 2023 to co-fund projects that demonstrate the use of innovative technology within the Malaysian capital market. This initiative would assist in developing new sources of growth, process enhancements, and improve competitiveness through the use of new technologies.