CGC plans credit rating for SMEs to improve bankability

KUALA LUMPUR: Credit Guarantee Corp Malaysia Bhd (CGC), which is expected to close the year by guaranteeing RM2.9 billion in loans to small and medium enterprises (SMEs), plans to make a credit rating system for SME business owners widely recognised in three to five years.
Its president and CEO Datuk Wan Azhar Wan Ahmad said CGC is focusing on improving the bankability of SMEs and the credit standing that SMEs hold would determine whether they have better access and terms to financing.
"We're doing it through our subsidiary (Credit Bureau Malaysia Sdn Bhd) where every SME is expected to have a rating. This is going to be the way of the future," he told a press conference at the Asian Credit Supplementation Institution Confederation (ACSIC) Conference 2014 here yesterday. The event was officiated by International Trade and Industry Ministry secretary-general Datuk Dr Rebecca Fatima Sta Maria.
It is understood that the credit rating called MyScore (Malaysia Standard Credit Rating Evaluation), a Credit Bureau Malaysia score was introduced in the middle of this year. It encompasses a credit score, credit grade and probability of default.
Wan Azhar said credit rating is present in developed markets like the US and UK and it is a norm where banks are able to quote the interest rate that they will charge to SMEs based on an individual's credit score.
"That's a system that we want and to have this, we must have the disclosure of information. Your credit standing will be information based on your repayment conduct. How you pay your bank loans, utilities and telephone bills ... it's all going to be incorporated and we're looking at three to five years to make this fully efficient," said Wan Azhar.
He said CGC will put in place plans to improve the SMEs' credit standing over time, either through advisory services or improving their conduct of account.
"When they come to CGC for financing, they are expected to have a higher credit standing when they graduate from the scheme. We will be monitoring the credit standing of each SME through our Credit Bureau and this will be a universal ruler that can measure their credit worthiness," he said, adding that the rating system is on two levels: for the companies as well as individuals.
"It (the system) is already is in place but it needs time for education," said Wan Azhar.
He said the recent enactment of the Credit Reporting Agencies Act, which requires for credit reporting agencies like Credit Bureau, RAM and CTOS to be licenced, will enable the government to regulate the type of information made available to the public.
"Right now, (there are) issues of some of the information being outdated, inaccurate and personal data being disclosed so we have to address all that."
He said for this year, CGC has so far guaranteed loans of RM2.8 billion, surpassing its RM2.7 billion target. Aiming to provide guarantee covers for 5,600 SMEs in 2014, CGC has so far assisted 5,300 SMEs. Going forward, it will be channeling its target to startups and new growth areas.
Earlier, he said the most successful guarantee institution is here in Asia.
"The Asian region, led by Korea, Japan, Taiwan and Malaysia has proven to be a major catalyst to the development and growth of SMEs," Wan Azhar said, adding that Malaysia's guarantee institution has been around for 42 years but Korea has had it for 70 years and Japan over 50 years.
He said CGC Malaysia is the only guarantee institution in the world to achieve financial sustainability. Korea has a law that requires the bank to put money into the guarantee institution while in Japan, the government sets aside an allocation to run the guarantee institution.
"For CGC Malaysia, there is no allocation, we have to ensure our operations are enough to bring us revenue to defray our cost and to pay claims for the bad loans and at the same time, make ourselves profitable. To sustain our operation, we have to design schemes that can bring in revenue."
The ACSIC Conference was attended by over 140 delegates from 19 credit guarantee institutions from 12 Asian countries.