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Malaysian SMEs look to alternatives to ease funding squeeze

The Securities Commission Malaysia (SC) said it will focus on strengthening alternative financing avenues to meet the funding requirements of the country’s micro, small and mid-sized companies (MSMEs).

SC, a statutory body tasked with regulating and developing Malaysia’s capital market, reported that it expects “resilient and orderly” conditions this year, despite a dip in the size of the capital market to ringgit (RM) 3.1 trillion at the end of  2018 from RM3.2 trillion a year earlier.

Malaysia’s capital market saw a moderate level of fundraising activities in 2018. Total funds raised decreased 21.8% to RM114.6 billion (US$28.2bn) from a record high of RM146.6 billion in 2017. Of this, RM105.4 billion was raised via the corporate bond and sukuk market; while RM9.2 billion was raised via the equity market.

The SC predicts fundraising will be stable at RM110-120 billion in 2019 on better performance from initial public offerings (IPOs).

Alternative funding increases

Although relatively nascent in Malaysia, alternative fundraising channels for MSMEs, such as equity crowd-funding (ECF) and peer-to-peer (P2P) financing are gaining traction with RM261.52-million of capital raised since 2015, said SC chairman Syed Zaid Albar

SC points out that alternative financing avenues sources succeed as they enable underserved issuers to connect with traditionally untapped pools of investors, while offering cheaper, faster and more convenient delivery channels. They are also tailored to meet the unique requirements of businesses at each stage of their lifecycle.

The Commission added that supply of capital to alternative financing avenues will be underpinned by augmenting wider efforts to grow Malaysia’s venture capital and private equity industry. SC will focus on diversifying sources of funding beyond government-backed funds, while also encouraging investment at different stages of companies’ life cycle.

SC identifies MSMEs and entrepreneurs as the backbone of the Malaysian economy, accounting for 66% of employment and 37.1% of GDP in 2017. Mirroring the broader growth of the digital economy, MSMEs have seen a shift from traditional bricks-and-mortar businesses to more digitally-led businesses, changing the way they interact with consumers.

The Commission said its efforts in 2018 were geared towards promoting awareness of venture capital (VC) and private equity (PE) in the Malaysian capital markets and encouraging private investors’ participation in both sectors.

The Commission also pointed to Malaysia’s continued position as a global leader in the Islamic capital market with RM1.9 trillion unchanged in syariah-compliant equities and sukuk outstanding. Malaysia also retains its status as the world’s largest sukuk market.

The SC says that its focus for 2019 will be on strengthening the alternative financing sources, facilitating digital investment models, expanding and harnessing synergies between Islamic capital market and sustainable finance, reviewing the entire primary market framework, improving investor experience, reviewing the licensing framework, strengthening the corporate governance ecosystem and strengthening risk supervision and surveillance.

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