Malaysian SMEs set to turn their backs on traditional banks

Malaysian SMEs set to turn their backs on traditional banks

Malaysian banks are at risk of losing SME business to non-traditional competitors, according to analytics company Fico.

Based on research by RFI Global and the SME Banking Council, Fico’s report highlighted that 57% of Malaysian SMEs are expected to access new or alternative borrowing products in 2022.

It also found that 70% of SMEs in the wider Asia-Pacific region are not satisfied with access to credit from their main bank, also citing other issues such as lack of transparency and lack of information and guidance.

Fico’s Asia-Pacific decision management solutions senior director, Aashish Sharma, said that the pandemic had put a sudden, massive burden on SMEs globally, and the research found that the banks’ customers thought that their bank did not do enough to help them.

“Malaysia’s SMEs have made it clear that they require financial support in 2022 but are less optimistic about getting it from their main banks,” he said.

“This is a potentially worrying trend for traditional banks, considering there are an estimated 1.15 million SMEs in Malaysia, employing about 48% of the workforce and contributing just over 38% of the GDP.”

The data analytics firm stated that banks need to understand what is causing SMEs to consider alternative funding sources.

According to the survey in the Asia Pacific region, SMEs expressed frustrations with the typical funding process of traditional banks and had identified room for improvement in their Covid-19 response.

The survey found 70% reported access of credit as a factor of frustration, alongside financial assistance (69%), information & guidance (68%), transparency relating to decisions and processes (68%) as well as speed of response (64%).

 

Speed of application process

It also found competitive interest rates, ease and speed of application process and flexibility in repayment options to be the top three drivers for Malaysian SMEs in choosing a loan provider.

Sharma said that alternative lenders have the potential to gain ground based on the challenges identified by this research and by its own market observations.

“However, the opportunity is there for traditional banks to retain borrowers if they understand those key decisioning criteria alongside the challenges and funding support sentiments of SMEs and the themes that have emerged,” he said.

He added that traditional banks must simplify the application process and improve transparency, as well as customer experience, if they wanted to see a continued and sustainable business growth from the SME segment in the region.

“From the banks’ risk management perspective, they can support these efforts with scalable, well-informed decisioning tools that can both speed up the process for all and minimise risk,” he said.