Building Sustainable SMEs Finance Ecosystem in a Digital Age – A Peer-Learning Seminar

• Ruziana Mohd Mokhtar, Deputy Director, Human Capital Development Centre, Bank Negara Malaysia
• Rajni Bajpai, Acting Country Manager for Malaysia, The World Bank Group
• Participants and
• Colleagues from WB, BNM and AFI

“Selamat Pagi” (Good morning) and a warm welcome to the A Peer-Learning Seminar on Building Sustainable SMEs Finance Ecosystem in a Digital Age jointly organized by BNM, The World Bank and AFI.  On behalf of Executive Director and AFI Management Unit I would like to thank you for making it to this international forum on SME Finance Ecosystem in the face of global health emergency. I wish to thank BNM, The World Bank, AFI for successfully putting this training together. This is our first ever tripartite collaborative effort and we hope for more collaboration.  This forum also underscores AFI’s desire for closer collaboration among key institutions undertaking work in financial inclusion to ensure efficient use of global resources by eliminating duplication.

For those who are new to the Alliance for Financial Inclusion (AFI), we are a member-owned network of financial regulators that promotes and develops evidence-based policy solutions to unlock the potential of the world’s 1.7 billion unbanked through the power of financial inclusion. As of the end of 2019, the AFI network had 100 financial regulatory institutions (such as Central Banks, Ministries of Finance, Micro Credit Regulatory Authorities) from 89 countries, together representing 85% of the world’s poor. Sub-Saharan Africa is the largest region accounting for over a third of members, followed by Latin America and the Caribbean, South Asia, and Eastern Europe and Central Asia.

Coincidently the SME Finance (SMEF) Working Group, was launched in September 2013 at the AFI Global Policy Forum held in Kuala Lumpur, Malaysia, with the aim of creating a unique forum for financial policymakers to discuss, innovate and jointly create smart policies that facilitate small and medium enterprises’ access to formal financial services. The Working Group is currently working in finalizing the policies in the area of MSME Alternative Finance, Gender, Data and Inclusive Green Finance. As highlighted by AFI’s SME Finance Guideline Note, SMEs are the backbone of virtually every economy in the world. SMEs represent more than 95 percent of registered firms worldwide, account for more than 50 percent of jobs and contribute more than 35 percent of Gross Domestic Product (GDP) in many emerging markets. And yet between 55 to 68 percent of formal SMEs in emerging markets are either unserved or underserved by financial institutions.  The MSME finance gap in developing countries is estimated to be approximately $5 trillion which is 1.3 times the current level of MSME lending. Improving access to finance for MSMEs can translate to; increased economic growth, job creation, as well as enhance the effectiveness of fiscal and monetary policy leading to better financial and economic stability.

In the case of Malaysia, we see SMEs were projected to contribute up 41% GDP, employ up to two-thirds of workers and comprise up to 98% of business establishments in the country. It is this compelling case that will provide us with key learnings for the development of our country SME eco-systems.

As we redesign our SME eco-systems there is urgent need for our transformation process to take into account three keys areas that will ensure long term sustainability and speed up global GDP growth. These are: gender inclusive finance, inclusive green finance and digitalization.

Gender Inclusive Finance and Inclusive Green Finance are cross cutting themes in all AFI initiatives. Given that SME finance policies are a good way to bridge the gender gap in financial inclusion as 23% of MSME are owned by women, policies and successful implementation models pertaining to promoting quality access to finance for SMEs are of key importance to AFI. So are policies that we prime SMEs to adapt and mitigate impact of climate change. AFI is currently taking stock of policies that members have in place to pool lessons learn with the view of accelerating peer learning on financial policy intervention to mitigate impact of climate change.

Despite the great importance to national economies, SMEs face an ever-changing business technological environment that is disrupting SME models and dictating the imperative for them to change or otherwise fail. We must therefore build this in our policy environment and product offering. SMEs that are unprepared for digitalization will not be competitive while those with the right culture and expertise to provide products and services in a complex and hyperconnected market will thrive.

With the emergence of fintech revolution and alternative finance market, the SME financing landscape has progressed thus ensuring better productivity and efficiency to the industries.  The landscape of global alternative finance has changed with the introduction of Peer-to-Peer/Marketplace Lending (P2P), Equity Crowdfunding (ECF), and Initial Coin Offerings (ICO). MSMEs are among the more prominent catalyzers of alternative finance. Regulators report a positive impact from alternative finance on both SME finance and consumers’ access to finance.

Again, we see Malaysia as a prominent player in the alternative finance domain, and is one of the 10 most benchmarked countries globally in terms of alternative finance regulation.

Building from AFI’s SME Finance Guideline Note issued last year, the SMEF Working Group will now be focusing on putting up a framework on SME financing that will guide regulators and policy makers in coming up with a comprehensive SME finance development policy for the African and Latin American regions that emphasize on their regional priorities. Moreover, AFI will also be conducting a Member Training on Enhancing MSME Financing: Policy Interventions and Good Practices this year from 5 to 7 May in Suriname which will focus on a range of good practices to facilitate access to finance for MSMEs from AFI’s SME Finance Guideline Note.

The success for sustainable development of SME depends on a permissive and holistic policy environment that will support the widespread adoption of technology that will pave the way for alternative financing for SMEs. In the process we must address emerging risks resulting from use of technology especially risks which may currently fall outside the conventional prudential responsibilities of financial regulators.

Ensuring gender inclusive financing and mitigation against climate change are policy priorities in our SME eco-system will be key to sustainability.

We look forward to your active participation and I wish you a productive week. Enjoy your stay in Malaysia, hope you have time to explore the country and the beautiful facility provided by Bank Negara.