Bank Simpanan targets RM70m net growth in micro financing

KUALA LUMPUR: Bank Simpanan Nasional (BSN) is targeting net growth of RM70 million in micro financing as it seeks to expand this lending segment.

“Net growth is after attrition – after payment, early payment and things like that – our net will be RM70 million. So, we have to disburse much more to get that net growth,” said its retail banking deputy chief executive Frederick Siew.

He said the net growth last year was at the same level, with RM220 million disbursed and the micro financing business is still profitable despite the high cost.

Contribution from the micro financing business to BSN overall is still small in comparison with other types of financing, such as corporate loans and mortgages.

“Micro finance loans are in small amounts, from RM5,000 to RM50,000. We are also conservative and careful in our growth. If you look at the risk characteristic of micro finance, it is much higher than a mortgage,” he said.

“If a borrower doesn’t pay his housing loan, we can sell his house and still get back money. For micro finance, if the borrower doesn’t pay, what can the bank do? We get nothing. We have to be very careful.”

To mitigate risks, the interest charged (for micro financing) is slightly higher than for a term loan but profitability, Siew said, is much lower than a corporate loan, thus BSN’s annual profit is not comparable with a commercial bank’s.

He said BSN, which has been tasked by the government to ensure financial inclusion, has the difficult role of balancing social responsibility and creating wealth of the society with profitability and sustainability.

“If we lose money to serve the rakyat, we have to make money somewhere else. We are actually under more stress to make money, in order to remain sustainable. I am proud to say that since 2005 we have never asked the government for money to run our operations,” he said.

Siew said its micro financing scheme, which offers conventional and syariah financing, has an approval rate of 30-40% with non-performing loans at a “manageable” level due to its strict emphasis on responsible lending.

“First thing in our mind is responsible lending. For example, if we know you have the potential, the ability to pay and you have a good business, we will lend to you. But if we were to lend it to people whose businesses are really not sustainable or viable, we could make them go bankrupt,” he said.

With Malaysia’s household debt at a high level, Siew said, it is important for BSN to ensure that the borrowers are able to service the loans and use the financing for a better life.

He said BSN is the leader in terms of micro financing, with 50% market share. Of the micro enterprises that it has disbursed loans to, 70% have been successful in their business while 5-10% have graduated to the small and medium enterprise level.