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Chai Kien Poon, Country Head of Funding Societies Malaysia discusses how digital financing platforms are working alongside banks and government-backed schemes to help more SMEs access the support available to them.
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00:08All right, program SINAR launched by the Ministry of Entrepreneur Development and Cooperatives
00:12COSCO marks a significant step in strengthening financing access for Malaysian SMEs, especially
00:19as they navigate global supply chain pressures and rising operating costs. And Funding Societies
00:25is one of the three financing partners selected to deliver SINAR on the ground, bringing a digital
00:31financing perspective to the initiative, particularly for SMEs with smaller ticket needs, a shorter
00:37track record or uneven cash flow. So joining us today is Chai Kianpun, the country head of
00:43Funding Societies Malaysia to share insights on how digital financing platforms are supporting
00:48SMEs under this program. KP, thank you for joining us. How are you?
00:52Good, good. Thanks for having us. Amazing. Thank you for taking the time to speak with
00:56me as well. So to start us off, what do SMEs need to understand about program SINAR, particularly
01:02when accessing the financing through a digital platform? Please.
01:07So program SINAR or program Sokongan Industri dan Perniagaan Rakyat is a program administered
01:13by the SME Corp. So there are five programs that make up SINAR and obviously cash flow, helping
01:21SMEs with cash flow is one of the key components and we are one of the program partners for
01:27SME Corp. So I think for our program specifically, which is under Prestige, it is meant to support
01:34high growth, high value SMEs within certain targeted industries. So for instance, oil and gas, halal industry,
01:42biotech, agriculture and etc. Application process is very straightforward. You basically go to our website,
01:49fundingsocieties.com.my and you submit your some details there. And while we try to ensure that the
01:58program is as digital, application process is as digital and as seamless as possible, but given the
02:03target segment of this program is for medium and fast growing SMEs where their financing amount is
02:09slightly larger. So it can go up to between 500,000 to a million ringgit. So from our experience,
02:14typically SMEs will need some handholding. So while it's meant to be digital, we have also ensured that
02:20there are sort of channels where they can reach out to a salesperson to understand more about the
02:25program. Now the beauty of this program is basically there are two products that is within the program.
02:31One is trade invoice financing, which is up to 500,000. It's revolving in nature. So SME can submit the
02:38invoices and based on the invoices, we will disperse the financing to them. Once they make repayment,
02:44we can continue and they can continue to draw down again with new invoices. So it's a recurring
02:49sort of program to help them with their cash flow. Financing cost is from 0.5% per month. So
02:55very
02:56competitive compared to some of the other programs in the market as well. Now on the other hand, there is
03:00term financing. So longer term for CAPEX R&D purpose up to five years. And that program is at 3
03:07% per annum.
03:07And there is a 30% rebate on the principal payment if the SMEs are paying well for at least
03:1436 months.
03:16Now that we understand and learn more about this initiative, program SINAR, realistically speaking,
03:23on the ground, many SMEs are actually concerned about managing day-to-day operations. So at the ground
03:28level, how does small ticket financing actually support SMEs in managing immediate operational needs,
03:34for example, like supply payments, payroll and inventory cycles under this program?
03:39Yeah. So I think where we come in is to really compliment the existing banks in serving the SMEs that
03:46are underserved or unserved by the traditional FIs. And very often the reason why, you know,
03:53they are not being served by the bank is for what you mentioned earlier. So cash flow uneven,
03:57maybe too small, too young. And essentially we are here to bridge the financing gap.
04:04So for a lot of the businesses, getting a financing within, and also we try to do it digitally and
04:13basically shorten the turnaround time as well. So for a lot of businesses, getting a decision within
04:18weeks compared to months means that they are able to take out one more order or otherwise they have
04:23to, you know, sort of decline the order. And this is especially pertinent, you know, in the whole supply
04:29chain crisis where costs are elevating. So very often they have to pony up cash immediately or otherwise
04:35they will lose the opportunity. And here's how we come in to support the businesses.
04:39And of course, when we talk about that, digital financing doesn't usually operate in isolation.
04:44It complements traditional financing schemes. So how do digital financing platforms like Fundy Societies
04:50actually complement traditional banks and government-backed schemes in reaching SMEs with urgent
04:57working capital needs? Actually, we are very happy with the development of how we have been able to
05:05partner with the government and its agencies. So I think three years ago, we have a similar if not
05:11worst crisis, which is COVID-19. So during that period of time, I think the whole industry,
05:17so P2P, SMEs, digital financing is still relatively new. So we do not have enough track record.
05:21So a lot of the fundings are actually being channeled through the traditional banks,
05:25even though they are a group of SMEs who are not very well served by the banks for various reasons.
05:31But I'm happy to sort of share that today, besides SINA, there are also many other programs that the
05:37government are working with a platform like ourselves. So for instance, Taraju has their IWCPA,
05:42Islamic Working Capital Project Financing. MITI has come up with a strategic co-investment fund to
05:48support manufacturers aligned with NIMP sectors. We also have MICEF under MOF. So essentially,
05:55they have recognised that P2P or SME digital financing are able to distribute help of a lower cost
06:03funding source to certain segments that are currently not well covered by the banks. Now,
06:08on the banking side, we are actually actively partnering with a few banks as well.
06:14So where they come in is basically their balance sheet, where they are able to provide lower cost
06:19of funds to the SMEs through platform like ourselves. So what we do is we supply the origination,
06:24the credit assessment, et cetera, and using the bank funds to support this SME first. But once they
06:31graduate to a certain size, to the extent that they are bankable, we are more than happy to pass on
06:35the
06:35client back to the bank. And this is how we collaborate within the whole ecosystem.
06:38And you're actually seeing this play out quite directly through SINA on the ground. But based on
06:44what you're seeing through SINA, what trends are actually emerging in terms of perhaps SME profiles,
06:49typical financing sizes and expectations around approval speed?
06:55So for SINA, with complete documentation, the turnaround time that we are aiming for is between
07:01seven to nine working days, which is a lot quicker than the other channels that they are able to get
07:08the financing from. And again, this is critical, right? Because essentially, the program is meant to
07:13help SMEs with their cash loan needs. Hence, timing is critical. I think the other segment that we are seeing,
07:20again, aligned with the target program of Prestige, we are seeing a lot of larger companies
07:26coming to us for applications, because this is the target segment. And they are typically within
07:32manufacturing, biotech, oil and gas, smart agri, halal industries, et cetera. While we do have other
07:39programs that cater for other segments, for Prestige, this is exactly the segment that they want to target.
07:45All right. I have one concern about programs SINA, because we know it's clearly targeted,
07:49but how do we ensure that it actually truly fills the financing gaps rather than just overlapping with
07:54other financial, the existing financial schemes right now we have in Malaysia?
08:00Yeah. So we are working with quite a few government and government agencies on partnering with them to
08:10distribute financing to certain target sectors. Now, the good news is a lot of them, or most of them don't
08:16overlap with each other. So for instance, SINA is targeting high growth, high value SMEs within a certain
08:23segment. So halal industry, biotech, agri-tech, oil and gas, tourism, et cetera. So the other program that we
08:30have is basically under Taraju, it's called IWCPF, Islamic Working Capital Project Financing.
08:37So they are solely targeting Bumi Petra companies that have government, MNC and JLC contracts.
08:45We also work with MITI, Waiya Strategic Co-Investment Fund. So their target segment is basically
08:53manufacturers who are aligned with NIMP sectors. And lastly, we also work with MICEF, Malaysia Co-Investment
08:59Fund Fund under MOF. They are a bit broader, but they have preference for upstream agriculture,
09:05agri-tech and biotechnology company. So you see most of them have their respective target segment,
09:10I think within the mandate of the respective agencies.
09:13But do we go, do initiatives like SINA go far enough in future-proofing SMEs or do we still need
09:20deeper structural changes in how financing is assessed in Malaysia, especially when it comes to the risk?
09:27So I think when it comes to program like SINA, it helps to solve one part of the problem,
09:34but candidly speaking, it is a huge part, which is access to financing. But beyond that, I think
09:40per what we mentioned earlier, we also need capacity building. So basically to help SMEs scale up. So
09:47instead of focusing, continue to focus on lower value part of the economy, we need to continuously have
09:54programs to enable them to go up the value chain. And last but not least, ease of doing business in
10:00Malaysia, because the first part is giving them financing. The second and third part is where you
10:04help the SME grow so that they're able to repay the financing in the future, and then the funds can
10:09be recycled for future cohorts. And I think the way SINA is designed, it basically covers all three components.
10:17But another thing that we want to look at, do you see any limitations happening today, particularly for
10:24more vulnerable or micro SMEs? So we are quite close to the ground. So we have financed more
10:29than 10,000 MSMEs today. And we have been observing data points regarding the SMEs cash flow and SME revenue
10:39growth. So indeed we have, so one very interesting example is F&B sector. So typically during
10:51Ramadan season, so February and March is where they will see a drop in their revenue. But what happened
10:57historically is after Ramadan, it will start to pick up again. But this year, we have observed that post
11:03Ramadan, which is around April, the number has stayed low, which means that, you know, there are some
11:10impact already that is impacting their business, maybe from lower consumer spend, because people
11:16are worried about the crisis, etc. May, we are continuing to monitor. It has gone up a little bit. So
11:22hopefully we can slowly, so hopefully over time, it will rebound, you know, June, July, etc. The other
11:29segment that we are also monitoring quite closely are small manufacturers. And in Dr. Lee, we have heard that
11:35because of the increase in diesel prices, logistic prices, particularly for smaller manufacturers who
11:40don't have pricing power, they cannot pass on the cost to basically their buyers, they have actually
11:45started managing costs. And how the cost has been managed is basically in terms of lower overtime for
11:51the employees. Or some has even started laying off employees. So these are really sort of the data
11:58points that we're seeing coming up from the market now. And to the extent possible, we want to see
12:04through the existing programs that we have with the government and the engineers, how are we able to
12:08distribute financing to help them bridge through this period of time? That's actually an interesting
12:13perspective of limitations. But there's often a balance between speed and cost. So are SMEs effectively
12:21paying a premium for faster and more accessible financing? Yeah. So if it is, if without the help of
12:30these government agencies, candidly, the cost of getting financing from P2P or SME digital financier
12:36will be slightly higher than traditional banks. And that's because traditional banks are funded by
12:43CASAs and fixed deposits, whereas our funds come from investors who naturally, when it comes to
12:47investment, they will demand a higher return compared to your FDs and CASAs that you put with the bank.
12:53Hence why during this period of time, I think where we work with the government agencies,
12:58where they are a bit more developmental in nature. So they are not solely financial investors where
13:02they're just going for returns. They can actually, and they are already doing so, lowering the cost of
13:07financing to the extent that a lot of these funds are actually quite competitive with traditional banks as
13:14well. But again, we are not competing with the banks because these are really segments that are not,
13:18they are currently underserved or unserved by the traditional banks. And now we want to bring the
13:24question of focus towards sustainability. With easier access to financing, how do we ensure that SMEs are
13:30not over leveraging themselves, especially in today's uncertain economic environment we see today?
13:39So that is where, you know, players like ourselves come in. So before we grant any financing to the businesses,
13:46even, you know, even through the government, various government programs that we have, we actually conduct
13:54assessment on them to determine their repayment capacity. So the amount of financing that we grant them
14:00will always stay within the ratios that will ensure that they have ability to make payment over a shorter,
14:07over a short period of time. And hence why most of the financing is also designed to be short term.
14:11But obviously, you know, if they are not running the business properly, or if macro economic conditions continue to be
14:19bad or it worsen, then even with the credit assessment, it might impact their ability to repay.
14:25Hence why the three pillars are important. So you give them financing, but at the same time, you figure out
14:30ways
14:31to help them go through this crisis and also making it easier to do business for them.
14:38But looking at the bigger picture, how do partnerships like SINA between government and also fintech players
14:45signal for the future of SME financing in place here? What's your outlook for that?
14:50No, I think it's a very positive development. Kindly speaking, it's not something new globally.
14:59So for instance, during COVID in the US and the UK, the government has actually leveraged a lot on digital
15:08players like ourselves to help ensure that the cash actually reach those that need it the most,
15:15you know, within a timely manner. I mean, of course, it's not without its critics. So there are obviously
15:21other things that they have to put in place to make sure the governance is there.
15:25But it is, I think, moving to the right direction because again, banks are not meant to,
15:31banks cannot reach out to everyone and they are not meant to do so. So having different players coming
15:37into the ecosystem where government can actually distribute funds to those that need it the most,
15:42I think it's very important. And it's also signal the maturity of P2P and SME digital financing,
15:50where we now, and the government is now comfortable to work with first to basically execute their policy decision.
15:57All right. So to wrap this up, perhaps a little call to action CTA towards entrepreneurs out there that
16:03want to join SINA program, how can they start?
16:07Yeah. So I think for anyone who is interested to explore, please feel free to drop by from my website.
16:12So besides SINA, if it doesn't fall within the country of SINA, there are also other government
16:17programs that are available on our website for you to explore. And I think we have gone through COVID
16:23before. I think that's probably one of the worst thing that impacted SMEs. We should be able to go
16:28through this one as well. But I think it takes effort from everyone to work together.
16:32All right. There was Chai Kian Poon and Country Head of Funding Society of Malaysia, sharing on how
16:38program SINA and also digital financing solutions are actually helping to broaden the excess of funding
16:44for SMEs especially. So thank you again for this insight. And you can find this whole discussion
16:49on all of our social media platforms and that includes astroowni.com as well. So thank you for watching.
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