by Tunku Danny Mudzaffar

It is no secret that micro, small and medium enterprises (MSMEs) play a vital role in the Malaysian economy contributing to a significant portion of the country’s output. It is reported that 98.5% of Malaysia’s registered business establishments are MSMEs, according to the Department of Statistics Malaysia. Not to mention, their contribution to the country’s gross domestic product (GDP) sits at 38.9%, equivalent to RM 552.3 billion before COVID-19 struck.

Just six months into the pandemic, the SME Association of Malaysia reported that up to 25% of the nation’s MSMEs were at major risk of closure, resulting in a monumental loss to the country’s economy. One would shudder to think of the families that would suffer from this adverse impact of the pandemic, as micro-business owners and small businesses shut shop, cutting off a large chunk of their income required to sustain themselves. This means that looking after such businesses is no longer just a matter of economical concern but also a means of looking after the most vulnerable communities in the country.

Fast forward one year and the government’s efforts must be applauded as measures have been put in place that has helped millions of struggling businesses to minimize retrenchment and cost-cutting measures that directly affect the B40 and M40 communities. However helpful, it is understandably impossible for the government to reach out to every single business owner out there. A crisis of this magnitude requires private organisations as well to lend a hand in an effort to rebuild Malaysia’s micro-economy – a gap that peer-to-peer (P2P) microfinancing might just be able to fill.

Since Malaysia started regulating the industry in 2016, P2P Financing has been gaining popularity as a seamless way for small businesses to gather the financing they need for working capital. When COVID-19 came about, banks, through the government cash injection such as the Penjana SME Financing Scheme, have provided much needed support required to help Malaysia’s MSMEs stay afloat. While helpful, it is impossible to help many entrepreneurs that had new businesses, some of which could not meet the traditional bank loan criteria. Some of these criteria include the three years worth of operations required to apply for loans along with the painfully long waiting process with tedious paperwork to add. During a crisis, time is a luxury that MSMEs can’t afford, with many newer businesses unable to accumulate three years’ worth of credit score. Here is where P2P microfinancing could play a vital role.