Welcome Remarks
NaviGate: Capital Market Green Financing Series
“Alternative Financing for MSMEs in Halal Economy”
by
Sharifatul Hanizah Said Ali
Executive Director, ICMD
Securities Commission Malaysia
31 May 2022
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Bismillahirrahmanirahim Encik Hairol Ariffein Sahari, Chief Executive Officer, Halal Development Corporation Berhad Distinguished guests, Ladies and Gentlemen, Assalamu’alaikum Warahmatullahi Wabarakatuh and a very good morning |
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| 1. |
It is a pleasure to welcome all of you to the third edition of the ‘NaviGate Capital Market Green Financing Series’. |
| 2. |
I would like to take this opportunity to thank my colleagues at the Securities Commission Malaysia and Capital Markets Malaysia, as well as our strategic partner, the Halal Development Corporation Berhad or HDC, for their support in bringing the many stakeholders together for conversations in creating greater awareness and connectivity between the halal industry players and Malaysian capital market. |
| 3. |
I am pleased to be able to deliver the welcome remarks this morning given the SC’s continued emphasis in fostering capital market inclusivity and in facilitating the advancement of the Malaysian halal economy. This is also in line with the SC’s Capital Market Master Plan 3, whereby one key area of focus is the Shariah-compliant funding needs of Micro, Small and Medium Enterprises, or MSMEs. |
| 4. |
It is apt that the theme for today is ‘Alternative Financing for MSMEs in the Halal Economy’, since there is tremendous unrealised potential for MSME’s to seek alternative market-based funding, which are mainly through the equity crowdfunding and peer-to-peer financing platforms, better recognised as ECF and P2P. |
| 5. |
MSMEs make up a substantial part of the growth engine of the Malaysian economy, contributing more than a third of our national Gross Domestic Product1. It is imperative therefore to intensify efforts to enable and facilitate underserved MSMEs that are seeking available and suitable financing options. Today these MSMEs continue to rely on traditional sources of funding originating from the banking sector yet there remains an estimated 90 billion Ringgit financing gap for MSMEs alone2 indicating the limited access to funding for smaller scale businesses. Micro firms constitute 78.6% of the 1.2 million MSMEs in Malaysia3 48% of SMEs in Malaysia were unserved or underserved, whilst 52% are financed by banks. Overall, 83.8% are from the services sector. |
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For the halal economy, the Islamic capital market or ICM, is a natural fit for alternative funding avenues due to the integration of Shariah principles governing both Islamic spaces. |
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This integration supports the potential of a holistic halal economy supported by end-to-end Shariah compliance throughout its value chain. |
| 8. |
I am also pleased to note that Malaysia has been ranked first amongst 81 countries and regions in the Global Islamic Economy Indicator for the ninth straight year4 according to the State of the Global Islamic Economy Report 2022, positioning Malaysia as the leading country in the Islamic economy space. |
| 9. | The lead ranking is attributed to its thriving market for Islamic finance, with other high key indicators scores that encompass a wide breadth of sectors ranging from halal food, Muslim-friendly travel, modest fashion, pharmaceuticals and cosmetics, to media and recreation, indicating the great potential for further development of the country’s halal segment in supporting the nation’s economic growth. |
| 10. | To foster the development of the halal economy, which is populated mainly by the MSMEs, appropriate and effective measures are paramount to support a comprehensive end-to-end Shariah-compliant ecosystem for the businesses involved. This includes halal from a ‘products and services’ perspective and Shariah-compliance from a ‘business transaction’ perspective. |
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Ladies and gentlemen |
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| 11. |
The ICM contributes more than 65 percent of the country’s overall capital market and plays an important role in financing the Malaysian economy. |
| 12. | Acknowledging the importance of MSMEs to the Malaysian economy, the SC has facilitated the development of market-based crowdfunding platforms through the introduction of ECF and P2P financing frameworks. Access to these alternative funding avenues for MSMEs remains at the forefront of the SC’s growth initiatives. The frameworks allow businesses and entrepreneurs, particularly in the MSME segment with innovative business ideas to raise funds through the capital market. |
| 13. | Since the introduction of ECF and P2P financing platforms in 2015 and 20165 respectively, a total of 2.7 billion Ringgit has been raised for more than 4,000 MSMEs6. |
| 14. | Shariah-compliant offerings and Islamic notes on these platforms have also gained traction and continued to provide MSMEs with alternative and viable options. The amount raised grew multi-fold from 1.5 million Ringgit in 2020 to more than 200 million Ringgit in 2021, benefiting 136 MSMEs7 |
| 15. | Furthermore, in 2021 the number of platform operators with options to offer Shariah-compliant financing has increased to 6 compared to 4 in 2020. We expect this rising trend to continue with the increasing interest from operators to offer Islamic finance services and issuers seeking Islamic alternative fundraising. |
| 16. | With a well-developed ecosystem, Malaysia's MSMEs seeking Shariah-compliant fundraising are expected to benefit from these avenues to support their expansion agenda. |
| 17. |
According to the 12th Malaysia Plan, the country's halal industry is expected to contribute 8.1 percent to the GDP8 and generate 56 billion Ringgit export revenue in 2025, compared to 6.6 percent and 30.5 billion Ringgit respectively in 20209. It further emphasises the importance of elevating the halal industry in Malaysia, as the country aspires to become a global halal hub and prime destination for halal investments. To support this aspiration and facilitate fundraising avenues within the halal sector, I urge the relevant stakeholders to continue to collaborate and develop an ecosystem conducive to businesses in the halal economy focusing on Shariah-compliant funding mechanisms. |
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These can be achieved through ongoing efforts to promote an inclusive ICM by covering a broader span of diversified Shariah-compliant investments, creating awareness of alternative Islamic fundraising activities. Consequentially, there will be greater access to a wide spectrum of the Islamic investment universe including the unlisted markets, which will provide more avenues for both retail and sophisticated investors to participate in public and private markets10 |
| 19. |
I also wish to share for those who don’t already know, that the SC in 2021 introduced the Shariah Screening Assessment Toolkit for the Unlisted Micro, Small and Medium Enterprises. |
| 20. |
The Toolkit provides guidance in screening the Shariah status of the MSMEs in the unlisted market. It is intended to benefit the ECF and P2P financing platform operators, Shariah advisers, and all relevant actors in the ecosystem. The Toolkit includes a series of assessment questions that are based on the Shariah screening methodology for the MSMEs, which has been endorsed by the Shariah Advisory Council of SC. |
| 21. |
The future for the growth of MSMEs utilising alternative fundraising avenues remains bright. By the end of this NaviGate edition, I hope that you will be more informed on the alternative fundraising options available in the ICM to accelerate the halal economy’s development. |
| 22. |
I will be looking forward to its progress, as the NaviGate programme will be a teaser for future programmes that we plan to organise. The SC and HDC will also be synergising closely to deliver such events by leveraging the Halal Integrated Platform which was established by HDC for their members for the purpose of providing a data pool of halal products and services as well as seamless access to the global halal players. |
| 23. | We will keep the industry stakeholders informed on its development in due course |
| 24. |
With that, I wish everyone a good and productive conference ahead. |
| Thank you | |
1 Source: BNM website; https://www.bnm.gov.my/sme-financing
2 CMP3
3 SME Corp website (Data as of End-February 2022); MSME Statistics
4Nikkei Asia (April 2022); Malaysia ranks as top Islamic economy for 9th straight year
5 SC Media Release (November 2016); SC Announces Six Peer-to-Peer Financing Operators – Malaysia First in ASEAN to Regulate P2P Financing
6 SC Annual Report 2021
7 The SC Annual Report 2021
8 12th Malaysia Plan
912th Malaysia Plan, Marketing-interactive website (Dec 2021); Malaysia to invest RM12.63m to grow halal industry next year
10CMP3
