Crowdfunding a critical source of alternative financing: Study

PETALING JAYA: Crowdfunding is expected to accelerate in the near future as a critical source of alternative financing for micro, small and medium enterprises (SMEs) in Malaysia, according to a research study by the Asian Institute of Finance (AIF).

Entitled “Crowdfunding Malaysia’s Sharing Economy: Alternative Financing for Micro, Small and Medium Enterprises”, the report describes a vibrant crowdfunding environment emerging in Malaysia following Bank Negara Malaysia’s (BNM) policy support for alternative financing and the Securities Commission Malaysia’s (SC) introduction of regulatory frameworks for equity crowdfunding (ECF) in 2015 and peer-to-peer financing (P2P) in 2016.

The research findings suggest that crowdfunding has grown in earnest in Malaysia since the introduction of the ECF and P2P regulatory frameworks and the appointment by SC of six platform operators for each in 2015 and 2016.

While loan approval rates are high, the volume of rejections is a matter of concern against a challenging business environment. Nearly 45% of SMEs are experiencing cash flow or liquidity problems due to rising operating costs in recent years.

“Much of their new growth depends on technology intensive ventures with a high reliance on electronic commerce and digitalisation. Bank lending for such emerging and untested areas of business is constrained by a lack of expertise and aversion to perceived high risk loans,” said the report.

It added that SME loan applications are often turned down by banks on the grounds of inexperience in new or unstable industry sectors, businesses being relatively young, insufficient management experience, and insufficient sales and cash flow.

Based on loan rejections by banks, BNM estimated the SME financing gap at RM25.1 billion for 2015. Of this, RM21.8 billion is expected to be met by alternative financing, including market-based crowdfunding.

A total of 300 business owners and 1,332 Malaysian public were surveyed.