More support for alternative finance development needed

KUALA LUMPUR There is significant room to support the development of alternative finance, such as crowdfunding, peer-topeer lending, private equity and venture capital and asset-based lending in Malaysia.

Bank Negara Malaysia in its 2016 Annual Report indicated that in 2015, key alternative financing amounted to RM3.3 billion, compared with RM25.1 billion in total small and medium enterprise financing applications that were rejected by banks.

This suggested a financing gap of RM21.8 billion that could potentially be met by alternative finance, said Bank Negara.

Crowdfunding and peer-topeer lending lower search costs for lenders and borrowers while private equity and venture capital allow for more aligned risk and return expectations of fund providers.

Meanwhile, asset-based lending structures take into account the value-generation capacity of reference assets and enables less creditworthy borrowers to improve cash flows by substituting their credit risk with that of more established customers.

These alternative funding avenues complement Malaysian businesses, where the trend in recent years has been for the deployment of information and communications technology in their operations.

Recently, Securities Commission Malaysia licensed six registered market operators to operate equity crowdfunding platforms.

These platforms raised a total of RM6.2 million in funding for startups in 10 months.

Bank Negara said the provision of alternative finance that combined commercial and social objectives through waqf and other donation-based arrangements to deliver direct benefits to society was gaining traction in the Islamic banking sector. Francis Dass