LETTERS: Financial technology, or fintech, is a pivotal game-changer for the digitalisation of small-and medium-sized enterprises (SMEs) — how they are operated and funded, especially in the context of the Covid-19 crisis and beyond.
Presently, SMEs are grappling with cash flow problems with growing unsettled and accumulating liabilities, including employment retention as well as operating and overhead costs.
Ernst and Young (E&Y) in its Global FinTech Adoption Index 2019 reported that the global adoption rate of fintech have been exponential, from 16 per cent in 2015 to 64 per cent last year.
This augurs well for the potential and future of digitalisation of the economy.
Promoting fintech as a key driver of SMEs would entail the following — the government playing an indirect role of incentivising and pushing SMEs to take advantage of fintech financing opportunities and directly enabling SMEs to move up the digitalisation chain.
Fintech is poised to overtake conventional banking and finance as well as non-banking sources as the leading source of financing opportunities for SMEs.
Funding Societies Malaysia and B2BFinPal are the two leading domestic or local players in the market currently in terms of peer-to-peer lending (P2P) and equity crowdfunding (ECF), otherwise known as co-investment.
The Securities Commission (SC) has been working with the government to launch the Malaysia Co-Investment Fund (MYCIF) of RM50 million targeted at our capital markets, including companies listed on the Leading Entrepreneur Accelerator Platform Market board (for SMEs).
Since last year, the SC has lifted the funding limit on ECF platforms to RM10 million, and allowed ECF and P2P platforms to operationalise secondary trading with immediate effect.
Fintech platforms have now helped more than 2,500 SMEs to raise over RM1 billion, according to the latest figures by the SC.
Fintech is simply a subset of digitalisation and digitalisation of SMEs' operational capacities should logically and organically extend to adoption of fintech as the alternative channel of credit line.
Fintech is not just a crucial source of funding and borrowing for SMEs in the long-run — part of the alternative solution to ease cash flow problems — but is also catalyst for the growth of digitalisation.
Moving forward, a closer strategic collaboration between the government and the SMEs is needed.
In this, the Malaysian Digital Economy Corporation (MDEC) has been at the forefront in promoting and augmenting fintech and driving forward the digitalisation of SMEs.
In August, MDEC, in collaboration with Bank Negara, launched the "Fintech Booster". It provides capacity building programmes for fintech companies, which are themselves SMEs, based in Malaysia to develop meaningful innovative products and services by enhancing their understanding of market, compliance and regulation requirements. MDEC chairman Datuk Wira Dr Rais Hussin has said that Malaysia "is in a strong position to harness various opportunities that Islamic fintech has to offer", which is still in its infancy in the country as only a handful of SMEs are utilising it.
Under the 2021 Budget, the government continues to nurture the development of the P2P lending and ECF eco-system. A RM50 million matching grant for P2P lending and RM30 million matching grant for ECF have been allocated.
Additionally, individual investors are entitled to a 50 per cent income tax exemption with a limit of RM50,000.
Other potential tax incentives could include the costs for infrastructural migration — to take advantage of digitalisation and by extension, blockchain technology (part of the fintech system).
There is no doubt that the government is doing its best to help SMEs' transition towards digitalisation. But, SMEs must also do their part.
Jason Loh Seong Wei
EMIR Research, Kuala Lumpur
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times