SMEs have to improve themselves in order to access finance and funding, and associations like ACCCIM and MICCI are there for them

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) and the Malaysian International Chamber of Commerce and Industry (MICCI) have both called on SMEs to properly equip themselves before looking for sources of finance and funding for their businesses. Speaking exclusively to MALAYSIA SME®, both associations have reached out to SMEs to help and to disseminate information. Information is not far away and a little closer to home than they think.

Responsibility of banks or SMEs?

While SMEs have been crying foul over the difficulties of applying for sources of finance and funding from banks, Koong Lin Loong, National Council Member and Chairman of SMEs and HRD Committee of ACCCIM, thinks that SMEs have to prepare documentation that banks require in order to help them.

Complaints come from two sides of the coin. SMEs say that they can’t get loans because of the performance of the business. For example, the business is unable to generate profits yet, or the methodology or value added by the business does not come at an early stage. It’s the chicken and egg story, banks say show me the profits, this is the constant tussle between banks and SMEs. Banks can only ask for collateral, which we discourage, but undoubtedly collateral is most important for banks, said Koong.

Other than being able to show that the business can generate profits, documentation is another reason cited by Koong on why SMEs have mostly failed to get funding and finance from financial institutions.

The bank can never assess you other than looking at documentation. The most important thing to them is the secondary documentation, like accounts of the business. The issue is that SMEs, when they first start their business, do not have proper accountants. They are not able to produce appropriate documents for banks to assess. How then are banks to advise the business on how to generate profits, or how to cultivate the business to have high gross profit? SMEs have a part to play, said Koong.

Datuk Wira Jalilah Baba, MICCI President, cited the unfamiliarity SMEs face with rules and regulations with regards to applying for sources of funding and finance.

Funding is plentiful, but it is not so transparent. We can’t really blame financial institutions for this as these are prerequisites when submitting proposals to these institutions. But at the same time, some SMEs are not very familiar with rules and regulations. They dont have the full knowledge of which financial institution would be most suitable and most friendly to their business, as well as the in-depth knowledge of submitting their proposal so that it would be seen positively by these institutions, said Jalilah.

Investment in technology and innovation

In order to stay competitive, especially with the coming of the ASEAN Economic Community (AEC) and the Trans-pacific Partnership Agreement (TPPA), SMEs have to invest in technology and innovation. But to stay competitive, SMEs require capital to engage new technology and innovations. How would SMEs be able to source new technology and innovations without resorting to using working capital?

Our SMEs are very conventional. If we look at statistics from SME Corp, the majority of businesses are in 2 areas, services and manufacturing. In order for them to become competitive, the price must be right, not necessarily low. When your price is right, your gross profit must be there. But if your price is right but your gross profit is not there, the business would be going towards bankruptcy. If your gross profit is too tiny, your business would not go anywhere.

In order for your business to do well then, you need to invest in the appropriate tools. These tools are IT or methodologies that can help you to improve the efficiency and effectiveness of the business. The ultimate objective of the investment is to have the value added to your business. If SMEs do not have this, you wont survive, explained Koong.

Koong further said that because there are limited funds for investment in technology and IT, SMEs would resort to using working capital. This is troubling for SMEs, as the investment is supposed to improve the working capital flow of the business. As such finance is used in the wrong way, thus cash flow will be affected.

There is a gap of expectations between financial institutions and SMEs. Are banks willing to take this kind of risk? said Koong.

Jalilah advocates the notion of innovation and technology for SMEs, and has encouraged SMEs to come and talk to advisors like MICCI.

If SMEs have great ideas and innovation, we encourage SMEs to come and talk to us about this, we have a great network for SMEs to access funding. We are connected internationally with a group of angel investors and financial institutions that are always interested in innovation. Despite this, the weakness shown by Malaysian SMEs is that they do not know how to present their cases, and how to convince these investors of the new technology that they have come up with. We can assist them by putting or realigning their proposal positively for these group of investors, said Jalilah.

An ASEAN Bank?

On the notion of the formation of an ASEAN Bank, where SMEs in the ASEAN region can access funding, Koong and Jalilah differed in opinions.

It would be good, with all countries operating their own SME Banks, there is a need for an SME Bank in the ASEAN region. ASEAN can be a great region, through various facilities, to address specifically the needs of SMEs. In order for this to happen and to be successful, there must be a full integration of the SME financial systems between ASEAN nations, said Jalilah.

Koong said, There is no immediate need for this, talking from a Malaysian SME point of view. In terms of financial institutions, we have a good system, and the number of banks is enough, as well as efforts from the Ministry of International Trade and Industry (MITI), SME Corp, and Koperasi Bank Rakyat. If we intensify this mechanism, SMEs can get vast assistance from these financial institutions, said Koong.

Help is at hand

Not all is gloom and doom for SMEs, as associations are always there to help, as well as various other agencies specifically formed to advise SMEs for finance and funding.

We need to understand what SMEs want, and then can we assist them by matching them with the right organisation or financial institution. Not all organisations would offer anything to anyone. For example, if a particular organisation like GreenTech will only offer funding to green companies, MICCI can help make their business green. Certain organisations have priority sectors that they provide funding to, said Jalilah.

Koong is on the same wavelength, and mentions that organisations and institutions like SME Corp and Bank Negara are trying to assist SMEs, and they have always engaged ACCCIM for assistance.

In order to understand SME problems, Bank Negara has set up an SME link and portal. All these things are a physical presence, and should be concentrated as a main unit to help SMEs. SME Corp and Bank Negara are different taskforces, and should go hand in hand to smoothen the process for SMEs, and form the bridge between SMEs and the ultimate fund provider, said Koong.

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Caption : Datuk Wira Jalilah Baba Photo: GSME News Network

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