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Three Ways MSMEs Can Make Better Use Of Their Financing Amid The Pandemic
by Tunku Danny Mudzaffar

With almost a year of partial and full lockdowns implemented in Malaysia due to COVID-19, the toll on many businesses has been heavy and taxing. One of the most severe ways that businesses have been impacted is the dire lack of cash-flow. Though there have been commendable efforts by the Government to provide bank loans to businesses in the form of the Penjana SME Financing Scheme, some banks still have a strict, though slightly loosened, credit criteria resulting in many micro, small and medium enterprises (MSMEs) falling through the net. With bank loans proving to be increasingly difficult to obtain, many small businesses are suffering and struggling to stay afloat.

Fortunately, there are regulated, alternative financing options available for businesses in this lovely country of ours, namely ECF (Equity Crowdfunding) and P2P (Peer-to-Peer) Financing. With 21 Securities Commission Malaysia (SC) regulated operators, and microLEAP being one of them, these small businesses have a variety of options to choose from when it comes to alternative financing. From Shariah-compliant to Conventional and from micro to SME financing; this SC-regulated space caters to all MSMEs.

Amid a turbulent economical period, MSMEs that have raised financing may be perplexed as to how to make the best use of this financial support. Here are some suggestions on how small businesses may look to wisely spend once they have successfully raised their financing during highly uncertain times:

First up, invest in people. Hiring in this state of economy is a far fetched idea for many businesses which is understandable as profits take a hit. Scalability is usually affected badly and the thought of expanding the current team is often left on the backburner. Instead, surviving becomes the sole consideration. However, it is important to keep in mind that those who have brought the business to where it is today are crucial. Focusing a significant amount of a business’ resources on the core team of any entity is crucial to help it bounce back once the dark clouds clear and the situation normalises.

Secondly, invest in digitalisation. This doesn’t necessarily mean spending hundreds of thousands on new technologies or platforms, (though if you managed to raise that kind of money and you have a well-thought out tech plan, then why not!) but rather look to pivot into e-commerce by selling on third-party platforms such as Lazada or Shopee, use Foodpanda, Grab and even Air Asia as another distribution channel; try to look at ways that you may reach your customer base that has effectively been under ‘house arrest’ for the good part of the year. We know that these marketplace platforms may not be cheap, but it is a good way of reaching out to your customers. For the micro-enterprises that microLEAP provides P2P Financing to, those that we are keen to host on our platform are those that have pivoted online, giving us a sense of comfort that they would be able to weather this storm. Of course, if you managed to raise such financing, to really stand out, the understanding of digitalisation must be expanded to not just selling on an online marketplace but also the processes in between. On this matter, I concur with MDEC CEO Surina Shukri and her comments on digitalisation at the virtual ‘Google Breakfast Series — Peering into Malaysia’s Digital Future’. One such example includes deploying a chatbot that could handle simple customer queries, allowing employees to focus on other crucial aspects of business and operations. Providing the right training for core employees to handle such technologies would also be wise, as upskilling employees proves to be more important than ever to a business’ ability to adapt in an age of uncertainty.

Thirdly, invest in diversification of your revenue stream. Some MSMEs outright struggle to make ends meet despite having tried everything during this pandemic. This could be down to a few factors such as the lack of demand for a product in the current climate or that the product is merely a ‘nice to have’ when people are focusing their limited cash flow on their ‘needs’ instead. When all else fails, businesses could explore the possibility of diversifying their revenue stream to stay afloat. It starts with market research to understand the demands of the community the brand has built over the years and how to offer a service or product that’s truly needed. Next, a plan of action must be formulated through careful strategising and upon assessing all the options, targeted marketing needs to be done to ensure past and potential new customers are aware of the new product or service offering. Look at Air Asia now diversifying into food delivery. Who would have thought that would happen 12 months ago? On the extreme side of things, even several of microLEAP’s borrowers (Issuers) have diversified to selling food & beverage online to supplement their main source of revenue.

These are just some suggestions on how MSMEs can make the most of their financing raised either by traditional means or via regulated, alternative financing operators. Understandably, there is no one method that fits all business needs as it is highly circumstantial. There are many ways to organise finances during a pandemic but our hope is that those who were able to receive financial support during these trying times are able to turn their circumstances around through vigilant and intelligent allocation of resources.

What we do: microLEAP provides small businesses access to Islamic and Conventional Peer-to-Peer (P2P) Financing, to help fund their business needs. Also called P2P Lending or Marketplace Lending, it involves 2 parties: the Issuer (borrower) and the Investor (lender), where the former is a business requiring funds and the latter is an interested party seeking opportunities to make the best of their idle income.

Link to article here.

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