KUALA LUMPUR: A diversified financing ecosystem is crucial to meet the evolving needs of small and medium enterprises (SMEs) that can cater to businesses with varying risk profiles, according to the Institute for Capital Market Research (ICMR).
ICMR highlighted in its latest research report titled "Market-Based Financing for SMEs In Malaysia: Issues, Challenges, and Way Forward", that although market-based financing for SMEs is gaining global recognition, it is crucial to understand that it should not be seen as a replacement for bank credit.
The report also pointed out that direct market-based investments may involve higher risks compared to traditional banking credit, as market-based financing transfers the risk to investors.
Excessive credit risk, on the other hand, can harm public savings and result in systemic economic crises.
Based on the ICMR's report, 64 percent of SMEs have pursued external funding, mainly turning to the banking sector to meet working capital needs.
In contrast, market-based financing, often used for business expansion, is less commonly chosen.
Among those who did not opt for market-based financing, 61 percent were aware of its availability, while 39 percent were not.
Consequently, ICMR director Azleen Osman Rani stressed the significance of stakeholders collaborating, considering the varied SME landscape in Malaysia, to foster SME growth.
"We work with various agencies, like SC, because we are closely affiliated with them and they are aware that we presented to other government agencies as well.
"Aside from focus group sessions, qualitative interviews, we have included multiple agencies and other regulators such as Bank Negara Malaysia and Bursa Malaysia, also the Recognised Market Operator (RMO) and financial intermediaries themselves," she told reporters at the research report unveiling.
Azleen added that the aim of the research was to understand how market-based financing can actually facilitate the growth and the development of SMEs in Malaysia.
"I think part of ICMR's role is not to just do the research, as highlighted by the chairman, but to play a role in advocacy.
"What you see here is the launch of the report, but behind the scenes, we actually present to different government agencies, different stakeholders in the private industry, and garner their feedback on some of the practical implementations of the research.
"That is something that I think will continue moving forward, it is not "be-all and end-all" of our work," she said.