Fortifying Funding and Investment Ecosystem for Continued Growth

Aligned with evolving market needs and digital advancements, the capital market continued to expand its role in financing business ventures, creating jobs, widening ownership of assets and generating returns on long-term savings. In this aspect, the SC has facilitated various measures through provision of innovative capital market solutions and collaborative endeavours with a broad spectrum of stakeholders and pivotal institutions.

Strengthening MSME and MTC Access to Capital Market Financing
SC-SME Corp Collaboration
The SC entered into a MOU with the SME Corp to catalyse MSME access to capital market financing. SME Corp is the central co-ordinating agency under the Ministry of Entrepreneur and Cooperatives Development that co-ordinates the implementation of development programmes for MSMEs across all related ministries and agencies.

The MOU, which builds upon the common priorities of the SC and SME Corp, aligns with the SC’s vision to foster a vibrant and resilient capital market that is inclusive and able to cater to the different financing needs of MSMEs. It also signifies the commitment of the SC and SME Corp in supporting the expansion and resilience of MSMEs, with the MSME segment being a key engine for economic growth.

The three-year collaboration between the SC and SME Corp aims to create about 200 capital market-ready MSMEs by 2026 and to familiarise about 300 MSMEs with sustainability disclosures and corporate governance best practices.
Key objectives under this collaborative framework include:

Strengthening financing inclusivity through joint initiatives to increase MSME financing access to capital market solutions. This will include enhancing MSME capital marketreadiness through capacity building and networking programmes.
Facilitating MSME ESG and sustainability transition by building their familiarity with sustainability disclosures and corporate governance best practices. The initiatives include capacity building on Simplified ESG Disclosure Guide (SEDG) for SMEs, which was released in October 2023.
Strengthening of both parties’ market insights and data on MSME capital market access by sharing information and analytics. Initiatives in this area include MSME capital market studies and consultations on MSME capital market policies and initiatives.
Expanding capital market funding pool for MSMEs by developing co-ordinated strategic investments and initiatives. These include supporting stock listings or fundraising via alternative financing platforms in Malaysia.
Mobilising Capital Market Financing Under NIMP 2030
Capital market financing and tools were featured prominently in the Ministry of Investment, Trade and Industry’s (MITI) New Industrial Master Plan (NIMP) 2030. The private sector, including the financial and capital markets, is expected to provide the bulk of NIMP’s estimated total investment of RM95 billion.

The SC provided inputs for the Financing and Push for Net Zero chapters in the NIMP 2030 in terms of avenues to mobilise capital market financing for MSMEs and MTCs in the manufacturing and manufacturing-related services industries.
Mobilising Capital to Finance MSMEs and Mid-Tier Companies via ECF and P2P Financing to Drive Economic Growth
In tandem with the Ekonomi MADANI’s objective to promote greater economic growth, inclusion and sustainability, the ECF and P2P financing markets continue to facilitate financing for more than 15,000 businesses in Malaysia, surpassing RM6 billion since inception. In 2023, the overall amount raised grew by 29% from 2022, reaching an all-time high despite heightened economic uncertainty.

The market also witnessed an increase in the contribution of Shariah-compliant ECF and P2P financing to the total funds raised in 2023, accounting for 24% compared to 8% in 2022. The total funds raised through Shariahcompliant financing in both markets grew significantly in 2023 to RM524.8 million (2022: RM140.8 million), primarily attributed to the substantial increase in funds raised through the P2P financing market.

Owing to the digital nature of these alternative financing channels, businesses situated beyond the Klang Valley have increasingly leveraged ECF and P2P financing for their financial needs. In 2023, businesses outside the Klang Valley have successfully secured over RM811.6 million, constituting 37% of total funds raised, a notable increase from RM471.5 million in 2022. The growth, driven by robust issuances on P2P financing platforms, signals a promising trend in broadening economic opportunities nationwide.

While overall investor participation in terms of volume is slightly lower in 2023 compared to 2022, the SC saw increasing participation of institutional investors in ECF and P2P financing markets. Notably, despite being a smaller segment, institutions have invested nearly RM1.3 billion into ECF and P2P financing campaigns, comprising 57% of total funds raised in 2023.

As part of continual evolution of the alternative financing market, efforts in 2023 have been focused on its expansion to new market segments and greater investor participation.
Expanding market segment for alternative financing
Growing Islamic alternative financing market
Islamic ECF and P2P financing markets as an emerging asset class is gaining significant traction. Characterised by its adherence to Islamic principles, ethical and socially responsible investing, this Shariah-compliant asset class appeals to a diverse range of investors.

In efforts to spur the growth of the capital market and help support the country’s economic recovery, the SC opened registration for new ECF and P2P market operators with Shariah solutions and value proposition late in 2022. The initiatives mentioned move towards a ‘liberalisation of the capital market’ to allow MSMEs and MTCs to have better access to funding to grow their businesses. Since the announcement, the SC has approved two new ECF platform operators that focused on Shariah-compliant value propositions.

This is in addition to the nine existing ECF and P2P market operators, providing conventional and Shariahcompliant alternative financing solutions.
Expanding P2P financing for mid-tier companies
While Malaysia has a developed bond market, it remains largely confined to serve large issuers and institutional investors. In contrast, MTCs which have a sizeable contribution to Malaysia’s GDP have been primarily self-reliant in financing their business growth especially if they have outgrown existing financing avenues for MSMEs but are still too small for the traditional public market.

In line with this, the SC has allowed the registration of new P2P financing platforms to offer debt-based financing for MTCs as compared to existing P2P operators who are predominantly serving the financing needs of MSMEs. To be eligible for this new registration, interested applicants must demonstrate their ability to facilitate larger issuances (of no less than RM5 million) and long-term financing (of over 12 months).

The new registration has attracted positive interests from potential market operators, with one new P2PMTC operator being registered by the SC.
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Enabling a conducive tax environment to encourage greater investor participation in the ECF market
As part of efforts to encourage greater investments into ECF by individuals, the government had announced in Budget 2021 that individual investors be given an income tax exemption, subject to the following:
Investment must be made through ECF platforms from 2021 to 2023;
Exempted amount is equivalent to 50% of investments made, capped at RM50,000 for each year of assessment (YA);
Exempted amount is limited to 10% of aggregate income for each YA;
Investment is not allowed to be disposed of within two years from the date of investment; and
The investor, investee company and amount of investment must be verified by the SC.
To provide greater clarity in respect of the income tax exemption requirements and to facilitate applications by eligible ECF investors for the tax exemption, the SC revised the Guidelines of Recognized Markets (RMO Guidelines) on 19 April 2023. It sets out the requirements which must be fulfilled by the individual ECF investor for purposes of applying for the ECF tax exemption, as specified in the Income Tax (Exemption) (No. 4) Order 2022.

The revised guidelines will enhance ECF investors’ understanding of the requirements relating to application of the tax exemption, while ensuring the attractiveness of the ECF industry.
Shoring up confidence in alternative financing market via Malaysia Co-investment Fund
MyCIF, a Malaysian government initiative established as part of the 2019 Budget, has fostered the growth and inclusiveness of alternative financing via ECF and P2P financing.

“It seeks to serve as an efficient and transparent means to channel government funds to the intended recipients while catalysing financing access for MSMEs. It also aims to crowd in private investments into these platforms.” said Datuk Johan Mahmood Merican, Secretary General of Treasury and Steering Committee Member of MyCIF.

With aggregate disbursement of RM250 million since its inception, the initiative has co-invested a total of RM930 million across 54,695 ECF and P2P financing campaigns as of December 2023, complemented by private investors contribution amounting to RM3.82 billion since the establishment of MyCIF.

In 2023, MyCIF expanded its special initiative towards promoting sustainability development agenda by extending the 1:2 special co-investment ratio to selected ESG segments alongside the existing initiative for agriculture sector, recognising the pivotal role in local economic growth.

MyCIF’s public-private co-investment model is the first of its kind in the region. This underscores the government’s commitment in shaping better financing access for MSMEs.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.