Small and medium enterprises (SMEs) form the backbone of Malaysia’s economy, contributing significantly to employment and GDP growth. However, navigating the tax landscape can be challenging for business owners. Understanding key tax regulations, reliefs, and compliance requirements is crucial to avoid penalties and optimise tax benefits.

What Qualifies as an SME for Tax Purposes?

Have you ever wondered whether your company qualifies as an SME or has transitioned to non-SME status for tax purposes? After years of growth, your business may no longer be classified as an SME—are you aware of the implications?

• The company’s gross income from business sources must not exceed RM50 million.

• The company must be a resident company in Malaysia with a paid-up ordinary share capital of RM2.5 million or less at the start of the basis period for a year of assessment.

• The company must not control, nor be directly or indirectly controlled by, a related company with a paid-up ordinary share capital exceeding RM2.5 million at the start of the basis period for a year of assessment.

• No more than 20% of the company’s paid-up ordinary share capital is owned by a foreign company or non-Malaysian citizens.

For further details on additional criteria, refer to Practice Note 4/2020.

Tax Rates for SMEs in Malaysia

 Gaining a clear understanding of Malaysia’s tax system for small and medium enterprises (SMEs) is essential for compliance and effective financial planning. The applicable tax rates are:

Tax Return and Compliance Deadlines 2025

​As we approach the 2025 financial year, it’s crucial for businesses and individuals to stay informed about tax return and compliance deadlines. Here’s a guide to the important tax return and compliance deadlines for 2025.

Key Tax Reliefs & Incentives for SMEs

To support SME growth, the Malaysian government offers various tax reliefs and incentives:

Special SME Tax Incentive

New SMEs incorporated from YA 2024 to YA 2026 enjoy a 100% income tax exemption on the first RM150,000of chargeable income.

Investment Tax Allowance (ITA)

Eligible SMEs investing in machinery, automation, or green technology can claim ITA of 60% on qualifying capital expenditure.

Reinvestment Allowance (RA)

SMEs that reinvest in expansion, modernisation, or automation can claim 60% of qualifying capital expenditure against 70% of statutory income.

Tax Deduction for Digitalisation & Automation

SMEs adopting e-commerce, cloud computing, or automation technologies may receive tax deductions of up to RM500,000 on qualifying expenses.

E-Invoicing: A New Requirement for SMEs in 2025

Malaysia is rolling out mandatory e-invoicing for SMEs starting July 2025. SMEs must:

• Issue electronic invoices for all B2B and B2C transactions.
• Integrate e-invoicing software to comply with LHDN’s system.
• Maintain proper digital records for tax audits.

Non-compliance could lead to tax penalties or disqualification from certain tax incentives.

Conclusion

Staying ahead with proper tax planning is essential for SMEs to maximise benefits, remain compliant, and optimise financial growth. Understanding the latest tax regulations, leveraging available incentives, and maintaining accurate financial records can help businesses minimise tax burdens while ensuring sustainability. Proactive tax management not only prevents unexpected liabilities but also positions SMEs for long-term success in an evolving economic landscape.

Interested to learn more about our P2P Investment Platform?

*The information provided in this article is based on the current tax laws and regulations at the time of publication. As tax laws and deadlines may change, it is advisable to consult with the Inland Revenue Board of Malaysia (LHDN) or a professional tax advisor for the most up-to-date and accurate information regarding your specific circumstances.

Interest rates play a crucial role in shaping investment decisions, and in a high-interest environment, investors often rethink their strategies. With traditional savings and fixed-income investments offering higher returns, some may wonder: Is P2P financing still a worthwhile investment?

While rising interest rates can impact borrower demand and default risks, peer-to-peer (P2P) financing remains an attractive option for those looking to diversify their portfolios. Here’s why it still holds potential and what investors should consider.

How High Interest Rates Affect P2P Financing

1. Higher Borrowing Costs for Businesses

When central banks raise interest rates, borrowing becomes more expensive for businesses. This can lead to a decline in loan demand, but for many small and medium enterprises (SMEs) that struggle to secure bank loans, P2P financing remains a vital funding source. 

For instance, ​In Singapore, the average SME business loan interest rate spiked to 8.16% per annum in 2023, the highest in a decade, accompanied by a 42% reduction in average loan quantum to S$130,000 (approximately RM441,480) from S$224,000 (approximately RM760,704) in 2021. ​

In Malaysia, peer-to-peer (P2P) financing platforms have emerged as vital funding sources for these businesses, offering alternative solutions to bridge financing gaps. As of June 2024, P2P platforms successfully raised close to RM377 million, benefiting over 1,100 SMEs.

2. Potential for Higher Returns

 In a high-interest environment, peer-to-peer (P2P) financing platforms in Malaysia have demonstrated the potential for attractive investor returns. For instance, during periods of lower central bank rates, some platforms reported investor returns ranging from 10% to 15% per annum.  As interest rates rise, P2P platforms may adjust their lending rates accordingly, which could lead to changes in investor returns.

 It’s important to note that while higher interest rates can enhance potential returns, they may also influence borrower behaviour and credit risk.

3. Increased Default Risk

​In Malaysia, peer-to-peer (P2P) financing platforms have experienced varying default rates over the years. By 2020, amid the COVID-19 pandemic, some platforms reported default rates of 3% and 2.5% per annum, respectively.These figures were considered reasonably low given the economic challenges faced during that period.

​During the COVID-19 pandemic, CapBay also maintained a 0% default rate on its P2P financing platform. This achievement underscores CapBay’s robust risk management and advanced credit scoring systems, which ensured investor interests were protected during challenging economic times. While strong risk controls can help mitigate losses, default risks remain inherent in P2P financing and may vary over time.

Why P2P Financing Remains a Strong Investment Option

Portfolio Diversification

​Integrating peer-to-peer (P2P) financing into an investment portfolio offers a strategic avenue for diversification beyond traditional assets like stocks and bonds. By allocating funds across various asset classes, investors can mitigate overall portfolio risk, as different investments may respond uniquely to market fluctuations.​

​The global peer-to-peer (P2P) financing market has experienced significant growth, valued at approximately RM281 billion in 2019 and projected to surpass RM2.4 trillion by 2027, reflecting an annual growth rate of 30%. This expansion underscores the increasing recognition of P2P financing as a viable component of a diversified investment strategy.​

Competitive Yields Compared to Traditional Investments

P2P investments often provide attractive risk-adjusted returns, even amidst rising interest rates. While traditional bank deposits or government bonds may offer lower real returns after accounting for inflation, P2P financing can yield higher returns due to the premium associated with lending to underserved markets. For instance, in Malaysia, P2P financing platforms have reported returns exceeding those of conventional savings instruments, though specific rates vary by platform and risk profile.

Opportunities in Niche Markets

SMEs play a crucial role in shaping the Malaysian economy, much like in many other countries. Despite their prevalence, many SMEs encounter challenges in accessing traditional financing due to stringent requirements and limited credit histories.

As of 2024, P2P financing, equity crowdfunding (ECF), and venture capital/private equity (VC/PE), collectively raised RM4.1 billion in 2024, reflecting a 7.1% growth from the previous year. Additionally, the Malaysia Co-Investment Fund (MyCIF) has co-invested RM1.19 billion in over 9,000 micro, small, and medium enterprises (MSMEs), attracting a total of RM4.92 billion in private investments, bringing the overall funds raised with MyCIF’s support to RM6.11 billion.

Key Considerations Before Investing

Evaluate Borrower Credit Profiles: Choose platforms that conduct rigorous risk assessments.

Diversify Your Investments: Spread your capital across multiple loans to reduce default risk.

Understand Platform Policies: Different platforms have varying risk mitigation strategies, such as reserve funds or buyback guarantees.

Conclusion

Even in a high-interest environment, P2P financing in Malaysia remains one of the many options available for those looking to diversify and earn competitive returns. However, as with any investment, returns are not guaranteed, and investors should carefully assess the risks involved, diversify their portfolios, and stay informed about market trends.

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.

Securing SME financing is a crucial step for businesses looking to expand, manage cash flow, or invest in new opportunities. You’ve done your research, met all the eligibility requirements, and submitted your application—only to face an unexpected rejection.

Why does this happen? Even when businesses seemingly qualify, lenders may still decline financing for several reasons. Understanding these factors can help you strengthen your application and improve your chances of approval for an SME loan or business loan.

1. Insufficient Credit History or Poor Credit Score

Lenders assess both business and personal credit scores when evaluating SME financing in Malaysia. Even if your business is profitable, a poor credit score or a lack of credit history can raise red flags.

How to fix it:

• Build a strong credit history by maintaining low credit utilisation and having a mix of credit accounts.
  

• Regularly monitor and improve your credit score by paying bills and existing loans on time.

2. Weak Cash Flow Management

 A lender’s primary concern is whether your business can repay the loan. If your cash flow statements show irregularities, frequent negative balances, or inconsistent revenue streams, they may see your business as a risky investment.

 How to fix it:

• Consider alternative financing solutions, such as invoice factoring, to unlock working capital from unpaid invoices.

• Maintain a steady cash flow by optimising invoicing cycles and managing expenses.

3. High Debt-to-Income Ratio

Even if your business is generating revenue, taking on too much debt relative to income can signal financial instability. Lenders prefer businesses with a manageable debt-to-income ratio to ensure they can handle additional repayments.

How to fix it:

• Avoid unnecessary borrowing and focus on maintaining a sustainable debt ratio.

• Pay off existing debts before applying for new financing.

4. Lack of Collateral or Personal Guarantee 

Some SME loan options require collateral or a personal guarantee. If your business doesn’t have valuable assets or if you’re unwilling to provide a personal guarantee, lenders may hesitate to approve your application.

 How to fix it:

• Strengthen your business finances to build lender confidence.

• Explore financing options that don’t require collateral.

5. Incomplete or Inaccurate Documentation

One of the most common reasons for business loan rejection is missing or incorrect information in the application. Lenders require detailed financial statements, business plans, and tax records to assess risk properly.

How to fix it:

• Work with an accountant or financial advisor to ensure accuracy and completeness.

• Double-check all documents before submission.

6. Industry Risk and Market Conditions

Some industries are considered high-risk due to volatility, economic conditions, or regulatory changes. Even if your business is performing well, external factors may make lenders hesitant to approve SME financing.

How to fix it:

• Consider alternative lenders or fintech platforms that specialise in your industry.

• Highlight your business’s strengths, such as consistent revenue growth and risk mitigation strategies.

Overcoming Rejection: What’s Next?

If your SME loan application is rejected, don’t be discouraged. Instead, request feedback from the lender, address the issues, and explore alternative financing options that best fit your business needs. Understanding what lenders look for can help you improve your financial standing and secure the funding needed to grow your business.

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.

Inflation and economic instability have far-reaching consequences, and healthcare financing is among the most affected sectors. As medical costs rise, healthcare providers, insurers, and patients face increasing financial pressure. Economic instability—whether due to global recessions, political turmoil, or pandemics—further exacerbates the problem by disrupting supply chains, limiting government budgets, and affecting employment rates.

Key Ways Inflation and Economic Instability Impact Healthcare Financing

1. Higher Medical Costs

Inflation directly impacts healthcare by increasing the cost of medical supplies, equipment, and wages for healthcare workers. Pharmaceuticals and essential treatments become more expensive, making healthcare unaffordable for many.

2. Rising Insurance Premiums

As healthcare costs rise, insurance providers adjust their premiums to cover increased expenses. This results in higher costs for individuals and businesses providing health insurance, potentially leaving many without adequate coverage.

3. Government Budget Constraints

Governments struggling with economic instability often reallocate funds from healthcare to other pressing economic needs. This can lead to reduced subsidies, underfunded public healthcare systems, and limited resources for essential services. 

4. Increased Medical Debt

With inflation eroding purchasing power, more individuals and families find themselves unable to afford out-of-pocket medical expenses, leading to higher levels of medical debt. This cycle of debt further weakens household financial security.

5. Limited Access to Healthcare

Economic downturns often lead to job losses, leaving many without employer-sponsored health insurance. This reduces access to healthcare services and increases reliance on emergency care, which is significantly costlier in the long run.

Buy Now, Pay Later (BNPL) for Healthcare: A Solution to Rising Costs

BNPL models, traditionally used in retail, are now being adopted for healthcare payments. These allow patients to access medical services immediately and pay in installments, reducing upfront financial burdens. This model is especially beneficial for individuals who cannot afford high out-of-pocket medical expenses but require urgent care.

Benefits of BNPL for Healthcare Suppliers in Times of Inflation

Improved Cash Flow

During periods of high inflation, the rising costs of medical supplies and operational expenses can significantly impact suppliers. BNPL solutions ensure that suppliers receive payments upfront while buyers enjoy flexible payment terms, reducing cash flow disruptions and enabling suppliers to manage their increasing costs effectively.

Reduced Credit Risk

With inflation leading to higher default rates, suppliers are at risk of non-payment from financially strained buyers. BNPL providers assume this credit risk, ensuring that suppliers get paid while minimizing the impact of bad debts and non-repayments.

Simplified Collections

As economic instability increases, businesses may struggle to collect outstanding payments. BNPL platforms handle payment collections, relieving suppliers from the burden of chasing overdue invoices and allowing them to focus on their core operations.

Streamlined Billing Process

In times of inflation, operational efficiency becomes even more critical. BNPL solutions integrate automated invoicing and e-invoice implementation, reducing manual paperwork, improving accuracy, and lowering administrative costs for suppliers.

Benefits of BNPL for Healthcare Buyers in Times of Inflation

Extended Payment Terms

Inflation drives up the cost of medical supplies and services, making it difficult for healthcare buyers to manage cash flow. BNPL solutions allow buyers to access essential healthcare resources without immediate financial strain, helping them navigate rising costs more effectively.

Easier Access to Credit

Traditional banks often tighten lending criteria during economic uncertainty, making it harder for new and small healthcare providers to secure credit. BNPL providers offer more flexible financing options, enabling buyers to continue procuring medical equipment, pharmaceuticals, and other necessary services without restrictive loan requirements.

Streamlined Payment Management

Managing multiple vendor payments becomes increasingly complex when inflation leads to fluctuating prices and payment terms. BNPL platforms help consolidate payment due dates, automate transactions, and simplify financial planning, allowing healthcare buyers to focus on service delivery rather than administrative burdens.

The Bottom Line

As inflation and economic instability continue to challenge the healthcare sector, alternative financing solutions like Buy Now, Pay Later (BNPL) are becoming essential. By offering extended payment terms, easing access to credit, and streamlining financial management, BNPL helps both healthcare suppliers and buyers navigate rising costs without compromising patient care.

For suppliers, BNPL ensures improved cash flow, reduces credit risk, and simplifies collections, allowing them to operate more efficiently despite economic pressures. On the other hand, healthcare buyers benefit from flexible financing that alleviates immediate financial strain, ensuring continued access to medical supplies and services.

With inflation showing no signs of slowing down, integrating BNPL into healthcare financing could be a crucial step toward building a more sustainable, accessible, and resilient healthcare system. As more providers and institutions adopt this model, BNPL has the potential to reshape how healthcare is financed, making essential treatments more affordable and widely available.

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.

Peer-to-Peer (P2P) financing is changing the way people and businesses access funds. As the financial industry evolves, technology plays a key role, and Artificial Intelligence (AI) is leading the way in making financing faster and smarter.

 In December 2021, a survey by the U.S.-based technology company Tableau revealed that 32% of fintech companies were already integrating AI technologies like voice recognition, predictive analytics, virtual agents, and biometrics. Beyond enhancing efficiency, AI is widely used in financial services to safeguard customers’ personal information. It plays a crucial role in fraud prevention by quickly analysing large datasets and identifying potential risks.

 P2P financing first emerged in the UK over 18 years ago and has since gained global traction. In recent years, it has experienced rapid growth, with a worldwide CAGR of approximately 30%.

The Promise of AI in P2P Financing

AI is being integrated into P2P financing platforms in various ways, promising smarter and more efficient operations. Key benefits include:

Enhanced Credit Risk Assessment

AI-powered credit scoring systems use advanced data analysis and algorithms to make credit assessments more accurate and efficient. These systems help manage risks better, reduce the chances of late payments, and support smarter lending decisions.

AI-powered credit scoring has significantly improved financial inclusion by identifying creditworthy individuals who might be overlooked by traditional models. A study of over 1 million underserved individuals found that AI-driven credit assessments led to higher loan approval rates while simultaneously reducing default risks. 

Figure 1: AI in Credit Scoring Market Research Report

The AI-driven credit scoring market is expected to grow significantly, with a projected CAGR of 25.9% from 2024 to 2031. This surge reflects the increasing adoption of AI in the financial sector to improve credit assessments.

Fraud Detection and Prevention

AI-powered fraud detection enables fintech companies to analyse large volumes of data in real time, swiftly identifying suspicious activities. By learning from past fraud patterns, these systems can detect anomalies that may indicate fraudulent behaviour, enhancing security and reducing risks.

A survey revealed that nearly half (49%) of financial institutions have already integrated AI into their systems for fraud detection, with 93% planning to invest in AI within the next 2-5 years. Additionally, Mastercard’s acquisition of cybersecurity firm Recorded Future for $2.65 billion underscores the financial industry’s commitment to enhancing AI-driven fraud detection capabilities.

These instances demonstrate how AI enhances fraud detection by enabling real-time analysis and adaptive learning, thereby strengthening security measures in the financial sector.

Automated Decision-Making

AI can process loan applications in minutes, significantly reducing the time it takes for borrowers to access funds. By automating routine tasks such as documentation checks and compliance verification, P2P platforms can operate more efficiently while minimising human errors.

For example, banks using AI-driven algorithms have shortened loan approval times to just 30 to 60 seconds. AI-powered document processing has reached accuracy rates of up to 99%, reducing errors and speeding up the lending process.

AI-driven loan processing has cut operational costs by 20% to 70% by automating tasks and reducing manual effort. These improvements enhance speed, accuracy, and overall cost efficiency for financial institutions.

The Challenges and Limitations of AI in P2P Financing

Despite its potential, AI is not without limitations. The excitement surrounding AI-driven solutions must be tempered with a critical evaluation of their challenges:

Bias in AI Algorithms

AI models are trained on historical data, which may contain biases. If this data includes systemic discrimination or flawed credit scoring practices, AI could perpetuate these biases, resulting in unfair lending decisions. A survey found that 36% of organizations experienced issues due to AI bias in their algorithms. Among them, 62% reported revenue losses, while 61% lost customers.

Figure 2: Negative Impacts of AI Bias

77% of organizations had AI bias or algorithm tests in place before discovering bias issues. In the U.S., 80% of companies had such tests, compared to 63% in the U.K., suggesting a need to reassess their effectiveness.

Figure 3: Discrimination from AI Bias

Data Privacy Concerns

AI depends on vast amounts of personal and financial data to operate effectively, raising concerns about privacy and the ethical handling of sensitive information. A recent KPMG survey found that 33% of respondents identified data privacy as a major concern when using AI.

Figure 4: Major concerns when using AI

Market Adoption and Trust

Investors and borrowers remain cautious about AI’s role in financial decision-making. Gaining their trust requires transparency, strong regulatory oversight, and proven success in minimising risks while enhancing returns.

Figure 5: AI technology market adoption rate

Research shows that while AI adoption is high in industries like healthcare, finance, and manufacturing, other sectors remain hesitant due to skepticism about its effectiveness.

The Bottom Line

AI is undeniably transforming P2P financing, streamlining risk assessment, fraud detection, and decision-making. Its ability to process vast amounts of data in real time enhances efficiency and provides new opportunities for both borrowers and investors. However, challenges such as bias in algorithms, data privacy concerns, and market trust cannot be ignored.

For AI to be a true game-changer in P2P financing, platforms must implement it responsibly—ensuring transparency, regulatory compliance, and human oversight. While AI is not a perfect solution, its potential to revolutionise the industry is significant. The future of P2P financing will likely be shaped by a balanced approach, where AI enhances decision-making while human expertise ensures fairness and reliability.

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.

For construction businesses, acquiring the right equipment is a major investment. While leasing may seem like an attractive option due to lower upfront costs, financing offers long-term financial benefits that make it the more cost-effective choice. Owning your equipment outright allows you to build equity, reduce long-term expenses, and gain more control over your assets.

Why Financing Beats Leasing

1. Long-Term Cost Savings

Although leasing may have lower monthly payments, it ends up being more expensive over time. With heavy equipment leasing near me, businesses pay recurring fees without ever owning the machinery. Financing, on the other hand, results in full ownership after loan repayment, eliminating ongoing rental costs.

2. Building Equity and Business Value

When you finance construction equipment, you gain a valuable asset that can be used, resold, or leveraged for future financing. With construction equipment leasing companies, you never build equity, as the equipment must be returned at the end of the lease.

3. Greater Flexibility and Control

Financing provides complete ownership, meaning there are no restrictions on equipment usage, modifications, or resale. Leasing contracts, however, often come with limitations, including usage restrictions, required maintenance schedules, and penalties for early termination.

4. Tax and Depreciation Benefits

Financing allows businesses to claim tax deductions on interest payments and depreciation. In contrast, leasing heavy machinery leasing agreements typically classify payments as business expenses, which may not provide the same long-term financial advantages.

5. Avoiding Rising Lease Costs

With leasing, costs can increase with each renewal, making long-term reliance on leasing construction equipment more expensive. Financing locks in costs upfront, protecting businesses from inflation and fluctuating lease rates.

Final Verdict: Choose Financing for Greater Financial Stability

While leasing may seem appealing for short-term projects, financing is the better choice for businesses looking to grow sustainably. By financing your construction equipment, you secure ownership, save money in the long run, and enhance your company’s financial health.

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.

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.