The Securities Commission (SC) Malaysia, the country’s capital market regulator, has unveiled a number of initiatives to increase micro, small and medium-sized businesses’ (MSMEs) access to finance and boost the country’s economic recovery from the pandemic.
The measures, announced on October 31, include opening up alternative finance platforms to a wider range of companies, as well as the creation of an RM30m (approx. $6.5m) digital innovation fund to accelerate the digitisation of the capital market.
New application opportunities for sharia-compliant equity crowdfunding and peer-to-peer (P2P) fundraising platforms are among the most notable changes introduced by the regulator.
While these solutions already exist for traditional financial service operators, the SC’s move to incorporate Islamic service providers is expected to be a boon for the sharia-compliant fintech ecosystem and the wider capital market. It will also help to boost Malaysia’s status as a world-leading Islamic finance hub by creating new funding opportunities for companies operating within the halal economy.
“Islamic finance has been a tremendous success and a real blue ocean for Malaysia,” says Professor Geoffrey Williams, provost for research and innovation at the Malaysia University of Science and Technology.
Alongside this measure, the SC has unveiled an initiative to open a registration channel for new P2P operators to offer debt-based financing instruments issued by mid-tier companies (MTCs). In doing so, MTCs will be given the chance to secure financing directly from the investment community, minus the cost and complexity of engaging with traditional intermediaries.
Missing the target
The SC hopes this initiative will, to some extent, fill the funding gap that exists for companies of a certain size that are unable to secure early-stage funding but are too small to tap the public markets in the traditional way.
Nevertheless, other problems facing Malaysia’s MSMEs remain, and they are unlikely to be solved by further capital market reforms.
“The initiatives are well intentioned but are not likely to be successful. The challenges for [SMEs] go beyond financing and include revenue problems and basic application problems, with many not having documents necessary for applications,” says Mr Williams.
“My engagement with SME associations reveal that the basic problems with SME growth and even survival are ignored by most of the policy initiatives.”
The SC has also unveiled initiatives to accelerate innovation and digitalisation within Malaysia’s capital market. This includes opening up additional registration opportunities for “Recognised Market Operators – Digital Asset Exchanges” (RMO-DAX).
The SC notes that by increasing the number of RMO-DAX participants, it will add to the “vibrancy” of the capital market by extending the quantity and type of exchange platforms in the country. This is accompanied by the launch of a Digital Innovation Fund that will allocate RM30m to co-fund innovative technology projects developed by intermediaries in the ecosystem.
In difficult circumstances
The push to revamp Malaysia’s capital market is one step in a broader effort to invigorate the country’s economic growth outlook, with some sectors of the economy still lagging behind pre-Covid norms.
Although Malaysia’s economy has fared relatively well in 2022, with gross domestic product growth likely to exceed the central bank’s 7% estimate, the outlook for next year points to a moderation of this trajectory; Maybank, the country’s largest lender, reckons real gross domestic product growth will hit only 4%.
It is also occurring against a backdrop of political uncertainty, as the general election on November 19 produced a hung parliament for the first time in Malaysia’s history. The result has seen a surge in political representation for the Pan-Malaysian Islamic Party, which emerged as the single largest party by parliamentary seats.
“This will be very worrying to many people in Malaysia and overseas. It shows when moderate Malay-centred parties are split, the more fundamental Islamic party gains strength. This will scare foreigners and international investors,” says Mr Williams.
In the immediate aftermath of the elections, Malaysian stocks and the ringgit both fell.
