New Innovative Tools for SME Financing Datuk Mohd Radzif Mohd Yunus Group Managing Director, SME Bank, Malaysia

Table of Content Traditional SME Financing and Key Challenges Rise of Fintech New Innovative Tools: The Way Forward Proposed Method for Adoptions by Financial Institutions D. Conclusion

New Innovative Tools for SME Financing Traditional SME Financing and Key Challenges Source: SME Masterplan Bank lending is the most common source of external finance for many SMEs and entrepreneurs. Spectrum of funding alternatives available to SMEs is constrained compared with large enterprises. Fifty percent of formal SMEs don’t have access to formal credit and the financing gap is even larger when micro and informal enterprises are taken into account. (World Bank) 15 February 2017 New Innovative Tools for SME Financing

SMEs Issues of Financing SMEs: Financier Vs SMEs FINANCIAL PROVIDER Want a Fast yet Clean Financing Lack of Financial Asset Poor Credit-worthiness Higher Risk-Return Profile Lack of Know-How & Resources Uncertainty over long-term position Lack of Data for KYC Purposes SMEs Lack of Proven Track Record Lack of Proper Business Plan Information Asymmetry High Interest Rate Charged Risk of High NPLs FINANCIAL PROVIDER Financing SMEs also been challenges by the immersion of Gen-Y into the SME Market which comes up with new business model and higher adoption of technology. Need for new approaches in understanding the Gen-Y immersion and new business model. 15 February 2017 New Innovative Tools for SME Financing

Fourth Industrial Revolution New Innovative Tools for SME Financing Rise of Fintech to address the Present Needs of SMEs Fourth Industrial Revolution Characterized by a range of new technologies . Impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human. Source: Professor Klaus Schwab, World Economic Forum Referring to companies that provide or facilitate financial services by using technology. Financial technology (Fintech) leading the way in disruptive innovation in financial services. Helping to bridge a $2 trillion funding gap for millions of small and medium-sized enterprises (SMEs). Rise of Fintech has led to the introduction of solutions that are efficient and effective at lower scale. What Fintech Offers Big Data Financing Software Payments Branding & Marketing Compliance 15 February 2017 New Innovative Tools for SME Financing Source: WE Forum: The Future of FinTech, A Paradigm Shift in Small Business Finance

Efficient and Effective Operations New Innovative Tools: The Way Forward Fintech FinTech embodies a new set of products tailored to the needs of small businesses. New tools in term of financing and making the operations more effective and efficient. Financing Efficient and Effective Operations The harvesting of insights from vast quantities of data. Peer-to-Peer Lending (P2P) Equity Crowdfunding (ECF) Practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. People (i.e. the 'crowd') invest in an early-stage unlisted company (a company that is not listed on a stock market) in exchange for shares in that company. Small businesses can turn unpaid invoices into fast cash with invoice factoring and invoice financing companies, including online lenders. Online Invoice Financing (OIF) Big Data Software Payments Compliance Business Solution Software, Accounting software, Apps to help SMEs. Growth in e-commerce has both facilitated and encouraged the further development of digital payments experiences. Standard checks can be performed automatically and are more reliable than manual checks to extract the most important data needed for AML/KYC . 15 February 2017 New Innovative Tools for SME Financing

Tech-Renewal- legal resourcing Issues of Collaboration Method of Adoptions for FIs to Adopt & Embrace Fintech Organic Growth (R&D) Acquisition For many firms, acquisitions are the only way to obtain a new technology or product and remain a competitive player in the marketplace. Establishing innovative, agile teams to develop new offerings rapidly, with an emphasis on digital features, such as mobile, social media, and data analytics. Cybersecurity Tech-Renewal- legal resourcing IP Strategy Data Privacy Strategy Issues of Collaboration Collaboration Collaborations present a great opportunity for banks not only resulting in increase of revenue, but most importantly innovation Big data brings big reputational risk, and there is increasing public interest in IT security arrangements. Issues of who own the Intellectual Property (IP) right after the collaboration. Roadmap for the integration of data which should include a primary data management system. Legal resourcing can be a big challenge, given that tech renewal is likely to absorb key people in the business for a very long time 15 February 2017 New Innovative Tools for SME Financing

As a conclusion… The free lunch is over: FIs must leverage Fintech New untapped technology is rewriting the FIs rulebook Time to get off bench: Over 20% of FIs business at risk to Fintech Disintermediation: FinTech’s most powerful weapon Where traditional FIs have failed, Fintech is succeeding Fintech is shaping Financial Institutions (FIs) from outside in 15 February 2017 New Innovative Tools for SME Financing