In today’s digital-first world, financial technology, or FinTech, is poised to play a crucial role in empowering smaller businesses through different stages of growth. Digital platforms that are targeted at supporting MSMEs can create an enabling environment for better financial inclusion. Within this context, CGC Digital is taking on the challenge to develop an accessible and efficient one-stop digital financial marketplace for MSMEs, supporting their growth and increasing their financial resilience.
Lack of a one-stop financing marketplace for MSMES in the digital ecosystem
Being a small business in today’s fast-paced digital world is a big challenge. Especially in the wake of the global pandemic, many small businesses, or MSMEs, have been left grappling with the challenges of pivoting from analogue to digital, and growing their business in an online world. A majority of business owners today inhabit a “digital ecosystem”, defined as a network of interconnected digital technologies, platform and services that interact with each other to create value for businesses and consumers[1].
Current rapid technological advancements in the financial services industry have led to the emergence of digital financial services (DFS)[2] and growth of various marketplaces and platforms offering various integrated solutions for different market segments. However, despite these rapid advances, it appears that there is still a lack of a viable one-stop digital solution that holistically addresses the unique financing needs and issues faced by MSMEs.
MSMEs face challenges accessing financing via traditional banking systems
The crucial role of MSMEs in driving Malaysia’s economic growth cannot be understated, considering that they make up 97.4% of business establishments and contribute 38.4% to the country’s total GDP[3]. In total, approximately 1.12 million business establishments in Malaysia are defined as MSMEs[3] and they employ 48.2% of the country’s population[4].
One of the most critical components for MSMEs to successfully scale their growth is good access to finance and lines of credit. Access to finance promotes good cash flow and financial flexibility, which in turn allows MSMEs to embrace new opportunities when they arise, while sustaining their current operations.
However, insufficient cash flow and working capital are common barriers to MSMEs’ growth aspirations. For many small businesses, opening a business banking account or applying for a loan can prove challenging due to having insufficient credit history and a lack of collateral. Moreover, MSMEs still face difficulties navigating complex financial regulations in the traditional banking system. Brought together, these hurdles negatively impact the financial health of MSMEs and thus, their potential for high growth and business expansion.
Benefits of digital platforms and ecosystems for MSME financing
With their growing significance in driving economic expansion, it is important to empower MSMEs with better access to financing and provide assistance to accelerate their business.
In this digital age, digital ecosystems or platforms can be a key catalyst to MSMEs’ growth and competitiveness, by providing them with easy, convenient access to diverse financing options and solutions that are tailored to their unique financing needs.
As an alternative to physical financing environments, digital platforms have several characteristics which make it faster and easier for MSMEs to get their needs met. At the start of development, many platform creators will choose to prioritise value creation for their target market. In other words, when creating the ecosystem, the focus is usually put solely on the customer and understanding their challenges and needs[1]. This allows for a more tailored approach to designing a system that is solutions-based and capable of addressing very specific problems or issues.
The second advantage of a digital platform is that they are largely data driven and have the ability to amass a wealth of information about processes and transactions that take place on the platform, to generate insights and make strategic decisions[1]. Data analytics is one of the most important factors for any digital ecosystem and assists tremendously in optimising platform efficiency.
Thirdly, digital platforms can also harness the power of automation technologies to make data-driven insights actionable and dynamic. In the context of digital financial services, machine learning algorithms may be used to streamline existing business processes, enhance productivity and empower collaboration through seamless knowledge transfer. Collectively, this serves to accelerate the high impact potential of the digital platform and enable it to provide greater value for its user base.
How CGC Digital is innovating a one-stop digital marketplace to spur financing access and targeted assistance for MSMEs
In 2018, Credit Guarantee Corporation (CGC) had developed and launched imSME, a financing and loan referral platform that was the first of its kind in Malaysia[5].
Back then, the main function of the platform was to aggregate financing information from financial institutions, agencies and alternative financiers[6]. Besides this, imSME also served to matchmake MSME users with compatible financing products and facilities and assist with applying for loan/financing from a single platform[5]. In short, imSME was designed to be a digital tool that could provide MSMEs easy and convenient access to information resources and financial services.
As a data and fintech subsidiary of CGC, CGC Digital is now pushing to further optimise the imSME platform into a fully integrated digital marketplace. With its strong commitment to advancing financial sector digitalisation via an MSME-centric approach, the fintech company aims to innovate the platform to become an embedded finance ecosystem[6] that can support MSMEs’ needs at each stage of their growth journey.
While the core services of providing information and financing assistance will remain, the optimised imSME ecosystem will also incorporate new expanded features, such as digital credit guarantee and other digital credit supplementation products and services[6], to make access to financing simpler and even more seamless for MSMEs. These features are ultimately aligned with the goal of transforming imSME into a comprehensive, one-stop digital financing marketplace for smaller entrepreneurs and business owners.
Besides this, CGC Digital believes that partnerships with key players are essential to enable the imSME platform to offer higher value-added services to MSMEs. Thus, it will seek to identify and collaborate with relevant partners that can synergise with the platform’s ecosystem and contribute to co-creating value in different areas.
Through these efforts, CGC Digital’s ultimate vision for the imSME platform is to be a one-stop digital marketplace to pave the way for underserved MSMEs to have convenient access to financial services and support to accelerate their business.
Alignment with NIMP 2030
As a digital initiative that aspires help bridge the gap faced by MSMEs in accessing financing and drive greater financial inclusion, the imSME platform is highly relevant to the Madani government’s recently launched New Industrial Master Plan (NIMP) 2030.
The NIMP 2030 is a policy framework that lays out key goals and missions, as well as specific strategies and focuses aimed at driving Malaysia’s industrial development over the next seven years. Under the NIMP, CGC has been tasked to expand the imSME platform to show all available funding options, including government funding and those from the capital market, as part of a wider goal to mobilise a comprehensive financing ecosystem for SMEs[6].
CGC Digital not only embodies those goals, but is striving to take it a step further, by innovating imSME’s core product into a comprehensive digital financial services marketplace. By engaging with different partners to bring an array of financing products and digital services to the platform, it aspires to provide greater value to MSMEs through a targeted range of solutions tailored to meet MSMEs’ needs. Being a financial technology solutions provider, one of its goals is also to leverage AI and machine learning technologies to create a better customer experience for business owners, and enable a seamless, frictionless journey while on the platform.
With the imSME digital marketplace as its first milestone platform, CGC Digital is committed to continue spearheading digital innovation and to be a leading fintech solutions provider in the digital financial services ecosystem. It will continue to proactively innovate digital solutions to serve MSMEs better and grow alongside them to help them succeed.
References:
- Talin, Benjamin. “What Is a Digital Ecosystem? – Understanding the Most Profitable Business Model,” December 9, 2020. https://morethandigital.info/en/what-is-a-digital-ecosystem-understanding-the-most-profitable-business-model/.
- World Bank. “The Role of Digital Financial Services in Bridging the SME Financing Gap,” July 13, 2023. https://blogs.worldbank.org/psd/role-digital-financial-services-bridging-sme-financing-gap.
- SME Corp. Malaysia. “Profile and Performance of MSMEs in 2022.” Accessed September 18, 2023. https://www.smecorp.gov.my/index.php/en/micro-enterprises
- The Star Online. “Malaysia’s MSME GDP Surges 11.6% in 2022 to RM580.4bil -DOSM.” The Star. Accessed December 6, 2023. https://www.thestar.com.my/business/business-news/2023/07/27/malaysia039s-msme-gdp-surges-116-in-2022-to-rm5804bil–dosm.
- CGC Malaysia. “About imSME.” imSME. Accessed December 6, 2023. https://imsme.com.my/portal/about-imsme/.
- “New Industrial Master Plan (NIMP) 2030,” 2023. https://www.nimp2030.gov.my/nimp2030/modules_resources/bookshelf/NIMP_20303/index.html.
