TRADITIONAL banks in Malaysia are at risk of losing small- and medium-sized enterprise (SME) business to non-traditional competitors, according to new insights from RFI Global (prepared for FICO based on research from the SME Banking Council).
Amid strong interest in borrowing funds, between 62% to 70% of SMEs in Asia Pacific (APAC) are less than satisfied with their main bank’s level of support in response to the COVID-19 pandemic, it said.
As such nearly 60% of Malaysia’s SMES expect to take up new or alternative or non-traditional borrowing products in 2022.
“The pandemic put a sudden, massive burden on SMEs, globally, and they didn’t think banks did enough to help them,” said FICO senior director of decision management solutions in Asia Pacific Aashish Sharma.
“Malaysia’s SMEs have made it clear that that they require financial support in 2022 but are less optimistic about getting it from their main banks.
“This is a potentially worrying trend for traditional banks, considering there are an estimated 1.15 million SMEs in Malaysia, employing about 48% the workforce and contributing just over 38% percent of the GDP (Gross Domestic Product).”
Verdict: Room for Improvement
Survey respondents across the Asia Pacific region pointed to frustrations with the typical funding process of traditional banks and identified room for improvement in their COVID-19 response across a range of funding related factors including:
- Access to credit (70%)
- Financial assistance (69%)
- Information and guidance (68%)
- Transparency re: decisions and processes (68%)
- Speed of response (64%)
SMEs call for competitive rates, simplified processes
According to this latest research, when choosing a loan provider or financial institution, the top three drivers for Malaysian SMEs are:
- Competitive interest rates;
- Ease and speed of application process; and
- Flexibility in repayment options
“Alternative lenders have the potential to gain ground based on the challenges identified by this research and by our own market observations,” said Sharma.
“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 SME and the themes that have emerged.”
According to Sharma, if traditional banks are to experience continued and sustainable business growth from the SME segment in the APAC region, they must simplify the application process and improve transparency as well as customer experience.
“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.” – April 26, 2022
