ICMR: Empowering SME with market-based financing
KUALA LUMPUR: Marketbased financing is crucial in empowering small and medium enterprises (SME) innovation as Malaysia evolves into a high-income economy, according to the Institute for Capital Market Research Malaysia (ICMR).
Market-based financing offers a range of funding options, including initial public offerings, venture capital, private equity, equity crowdfunding (ECF) and peer-to-peer (P2P) lending.
By providing access to these diverse funding sources, marketbased financing addresses the challenges posed by limited collateral and credit history, as well as reduces SMEs’ reliance on a single funding channel, thereby enhancing their financial resilience.
“Market-based financing has a promising trajectory to support the needs of the new economy, growth-driven and innovative SMEs to achieve our national economic goals,” said ICMR director Datin Azleen Osman Rani.
She noted that leveraging networks through government agencies and business associations was the toppreferred medium for obtaining information about market-based financing.
Therefore, regulators, recognised market operators, advisors, sponsors and other intermediaries should strengthen their networks with business associations and government agencies to disseminate information on market-based financing offerings to SMEs, she added.
In its “Market-Based Financing for SMEs in Malaysia: Issues, Challenges and the Way Forward” report, the ICMR revealed that market-based financing is the least utilised financing option, while 64 per cent of SMEs have experience in external financing, with most opting for funding from banks.
The report stated that marketbased financing is primarily used for business expansion, while financing by banks is more commonly used to meet working capital needs.
Among respondents with no experience in market-based financing, only 61 per cent were aware of its availability, particularly regarding crowdfunding platforms like ECF and P2P financing.
Of those who were aware of market-based financing, 85 per cent expressed a willingness to consider marketbased financing, while 15 per cent ruled it out for future funding needs.
“This willingness is contingent on a beer understanding of market-based financing, trust, ownership control and concerns about exit strategies; underscoring nuanced considerations across different business sizes,” it said.
Primary hurdles for SMEs adopting market-based financing include complex and lengthy procedures, stringent requirements, high funding costs and a surprising lack of outreach by industry players.
Nonetheless, the report also acknowledges that financing alone cannot address all limitations within the SME ecosystem.
It said policies to support SMEs should not solely focus on financing but should equally address other challenges faced by SMEs, including knowledge constraints, embedding sustainability principles, limited managerial skills and business acumen, lack of financial management skills, talent shortage and access to technology assets. — Bernama