PETALING JAYA: The awarding of digital banking licenses by the first quarter of next year is set to provide a major boost to small businesses and entrepreneurs from the bottom 40 (B40), say economists.
The economists, including Carmelo Ferlito and Geoffrey Williams, say the digital bank licenses will allow companies to enable microfinancing, involving smaller loans that come attached with fewer conditions than the traditional loans from banks.
While some of the companies that have bid for the licenses include the usual suspects such as banks, state governments and cooperatives, there are also new players such as tech firms and, interestingly, e-commerce operators.
Williams, an academic with the Malaysian University of Science and Technology said easier access to financing will provide significant benefits to micro SMEs which make up 98% of all businesses in the country.
“Access to small inexpensive financing facilities can help existing SMEs to manage better and scale-up, or can help new startup companies to get off the blocks with capital to buy startup stock, inventory, or equipment.”
Ferlito, who heads the Center for Market Education said microfinancing was preferable to government assistance when it comes to uplifting underserved communities.
“Aid creates dependency, they don’t create an entrepreneurial mind or push entrepreneurship, they just create financial and political dependence.”
New players, new dimension
Sonia Kumari Selvarajan of Universiti Malaya said that the entry of new players like e-commerce platforms into the banking business can give a boost to micro SMEs, particularly enterprises led by youth or women, which are usually starved of funds.
She said the advantage of digital banks is that more people will be able to obtain loans; unlike conventional banks, which reject many loan applicants, digital banks will use alternative credit scoring mechanisms which utilise meaningful data.
“Digital banking will also make banking easy (for small entrepreneurs) as transactions, processes, engagements and the experiences are simplified with user-friendly mobile apps where people no longer need to spend half a day or take time off to visit a branch and fill up forms.”
She said e-commerce operations such as Shopee, Lazada and other similar companies already provide an avenue for small businesses or MSMEs to offer their products to the mass population while helping them generate income.
“Coupled with digital banking, this can act as a true game-changer and help to reshape financial inclusion in Malaysia, addressing the needs of the unserved and underserved segments,” said Sonia, who is attached to the university’s department of development studies in the faculty of business and economics,
She added that platforms like Shopee would be able to cut through conventional credit assessment red tape when assessing repayment capabilities as millions of MSMEs are already actively transacting on the platform and leaving digital financial footprints.
Having more inclusive financial initiatives, she said, is critical for helping to alleviate poverty and build greater equity and opportunity.
“It not only provides opportunities for people from the underserved segments to create revenue opportunities for themselves, but their growing businesses will also provide job opportunities for others in their communities.”
Sonia said digital banking license applicants need to demonstrate their ability to empower MSMEs through digitalisation and have a good track record in the e-commerce or technology industry.
The entry of e-commerce platforms into the digital banking space is not a strange concept. In Singapore, Shopee’s parent company Sea Limited offers digital banking services, while others like Walmart, Alibaba and Rakuten have also ventured into the fintech space. - FMT
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