Alternative financing a necessary part of financial system, says Bank Negara assistant governor

SHAH ALAM: Alternative financing is an absolutely necessary component of the financial systems according to Bank Negara Malaysia’s (BNM) assistant governor Adnan Zaylani (pix).

He elaborated that the from the standpoint of banking institutions, the fundings are raised from the savings of the public and with that there is a certain acceptable level of risk for such institutions.

“Given that the funds are sourced from public savings, funding for high-risk business might not be a suitable venue for these institutions,” Adnan told the media at BNM’s SME Financing Seminar.

“Hence, alternative financing which includes peer-to-peer (P2P) lending and equity crowdfunding could cater to such high risk business.”

P2P lending platform operator Fundaztic stated that since the segment started over two years ago, RM520 million has been financed to over 1,600 unique SMEs.

For next year, the P2P industry expects the figure to exceed the RM1 billion mark.

On the whole, the deputy governor revealed that the approval rate for SMEs financing currently exceed 70%.

“If possible we want to maintain that trend or go even higher,” he said.

To ensure that the financing needs of financing needs are met, Adnan related that the central bank has made it mandatory for financial institutions to explain the grounds of rejections for financing applicants.

“With that they could seek advice from BNM’s Financing Advisory Services or other financial advisory services, for further clarification on their loan rejections and advice to improve their eligibility,” he said.

Regarding the grounds of rejection, Association of Banks in Malaysia

representative K J Balan explained that one of the main factors of SMEs financing rejection is due to the inability to cover the debt-service ratio.

Association of Development Finance Institutions of Malaysia Datuk Yunos Abd Ghani concurred with Balan’s views.

He explained that from a credit assessment perspective there isn’t much difference between commercial bank and development bank as the credit standards are the same and at the end of the day the capacity to pay is the key issue.

“As far as comments, that it is difficult to obtain financing, we felt that it is inaccurate as funding is widely available but the eligibility to borrow is an important factor.”