Download New Innovative Tools for SME Financing

New Innovative Tools for SME Financing
Datuk Mohd Radzif Mohd Yunus
Group Managing Director,
SME Bank, Malaysia
Table of Content
A. Traditional SME Financing and Key Challenges
B. Rise of Fintech
C. New Innovative Tools:
D.

The Way Forward

Proposed Method for Adoptions by Financial Institutions
Conclusion
Traditional SME Financing and Key Challenges
Source: SME Masterplan
 Bank lending is the most common source of external finance for many SMEs and entrepreneurs.
 Spectrum of funding alternatives available to SMEs is constrained compared with large enterprises.
 Fifty percent of formal SMEs don’t have access to formal credit and the financing gap is even larger
when micro and informal enterprises are taken into account. (World Bank)
15 February
2017
New Innovative Tools
for SME Financing
Issues of Financing SMEs: Financier Vs SMEs
Risk of
High NPLs
Lack of
Data for
KYC
Purposes
FINANCIAL
PROVIDER
Information
Asymmetry
•
•
15 February
2017
Lack of
Proper
Business
Plan
Higher
RiskReturn
Profile
Uncertainty
over longterm
position
Lack of
Know-How
&
Resources
Poor
Creditworthiness
Lack of
Financial
Asset
SMEs
Lack of
Proven
Track
Record
Want a Fast
yet Clean
Financing
High
Interest
Rate
Charged
Financing SMEs also been challenges by the immersion of Gen-Y into the SME Market which
comes up with new business model and higher adoption of technology.
Need for new approaches in understanding the Gen-Y immersion and new business model.
New Innovative Tools
for SME Financing
Rise of Fintech to address the Present Needs of SMEs
Fourth
Industrial
Revolution
 Characterized by a range of new technologies .
 Impacting all disciplines, economies and industries,
and even challenging ideas about what it means to be
human.
Source: Professor Klaus Schwab, World Economic Forum
 Referring to companies that provide or facilitate financial services by using technology.
 Financial technology (Fintech) leading the way in disruptive innovation in financial services.
 Helping to bridge a $2 trillion funding gap for millions of small and medium-sized enterprises (SMEs).
 Rise of Fintech has led to the introduction of solutions that are efficient and effective at lower scale.
What Fintech Offers
15 February
2017
Big Data
Software
Financing
Payments
Branding & Marketing
Compliance
New Innovative Tools
for SME Financing
Source: WE Forum: The Future of FinTech, A Paradigm Shift in Small Business Finance
New Innovative Tools: The Way Forward
Financing
Fintech
• FinTech embodies a
new set of products
tailored to the needs of
small businesses.
• New tools in term of
financing and making
the operations more
effective and efficient.
Peer-to-Peer
Lending (P2P)
 Practice of lending money to individuals or businesses
through online services that match lenders directly
with borrowers.
Equity
Crowdfunding
(ECF)
 People (i.e. the 'crowd') invest in an early-stage
unlisted company (a company that is not listed on a
stock market) in exchange for shares in that
company.
Online Invoice
Financing (OIF)
Big Data
Efficient and
Effective
Operations
New Innovative Tools
for SME Financing
 The harvesting of insights from vast quantities of data.
Software
 Business Solution Software, Accounting software,
Apps to help SMEs.
Payments
 Growth in e-commerce has both facilitated and
encouraged the further development of digital
payments experiences.
Compliance
15 February
2017
 Small businesses can turn unpaid invoices into fast
cash with invoice factoring and invoice financing
companies, including online lenders.
 Standard checks can be performed automatically and
are more reliable than manual checks to extract the
most important data needed for AML/KYC .
Method of Adoptions for FIs to Adopt & Embrace Fintech
Strategy
Issues of Collaboration
Cybersecurity
Acquisition
Organic Growth (R&D)
Establishing
innovative,
agile teams to develop
new offerings rapidly, with
an emphasis on digital
features, such as mobile,
social media, and data
analytics.
For
many
firms,
acquisitions are the only
way to obtain a new
technology or product
and remain a competitive
player in the marketplace.
Collaboration
Collaborations present a
great opportunity for
banks not only resulting in
increase of revenue, but
most importantly
innovation
15 February
2017
New Innovative Tools
for SME Financing
• Big data brings big
reputational risk, and
there is increasing public
interest in
IT security arrangements.
IP Strategy
• Issues of who own the
Intellectual Property
(IP) right after the
collaboration.
Data Privacy
Tech-Renewal- legal
resourcing
• Roadmap for the
integration of data which
should include a primary
data management
system.
• Legal resourcing can
be a big challenge,
given that tech renewal
is likely to absorb key
people in the business
for a very long time
As a conclusion…
Fintech is shaping Financial Institutions (FIs) from outside in
Time to get off bench:
Over 20% of FIs
business at risk to
Fintech
Where traditional FIs
have failed, Fintech is
succeeding
Disintermediation:
FinTech’s most powerful
weapon
New untapped
technology is rewriting
the FIs rulebook
15 February
2017
New Innovative Tools
for SME Financing
The free lunch is over:
FIs must leverage
Fintech