On 21 January 2022, Bank Negara Malaysia, the Central Bank of Malaysia (‘BNM’) introduced two new facilities under BNM’s Fund for Small Medium Enterprises (‘SMEs’), namely the Business Recapitalisation Facility (‘BRF’) and the Low Carbon Transition Facility (‘LCTF’) with a facility amount of RM1.0 billion each. 
 
This alert highlights the main features of the LCTF.
 
Background
 
The LCTF and the BRF were first announced by the Minister of Finance during the 2022 Malaysian Budget Speech.¹ The LCTF is a financing facility to encourage and support SMEs in adopting sustainable practices for business resilience and is in line with the Government’s target for Malaysia to be a net-zero emission economy by 2050.
 
The LCTF is made available through participating financial institutions (‘PFIs’) which will make available a matching amount of RM1.0 billion of their own funds, thereby increasing the total facility amount to RM2.0 billion. The list of PFIs is available here.
 
Purpose of the LCTF
 
The LCTF can be used to finance capital expenditure or working capital to initiate or facilitate the transition to low carbon and sustainable operations. These include, but are not limited to, the following activities: 

According to BNM, the full list of projects/activities eligible to be financed is available from the PFIs.
 
The LCTF cannot be used to refinance existing credit/financing facilities.
 
Eligibility
 
The LCTF is available to SMEs² in all sectors. Interested parties are advised by BNM to contact the PFIs for further details as to their eligibility. Applications for financing will be subject to assessment by the respective PFIs.
 
Financing amount, tenure and financing rate
 
Eligible SMEs will be able to obtain financing up to RM10 million each. The maximum tenure for financing is 10 years.
 
The maximum financing rate is 5.0% per annum, inclusive of guarantee fee for guarantee (if any) by Credit Guarantee Corporation Malaysia Berhad (CGC) or Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP).

Security
 
Collateral is not required under the LCTF.
 
Availability
 
The LCTF will be available from 3 February 2022 until full utilisation.
 
Further information
 
Further information on the LCTF is available here and here.
 
Comments
 
This is an encouraging initiative by BNM. It is hoped that SMEs will take the opportunity to obtain financing under the LCTF for the purposes of assisting them to adopt more environmentally friendly measures in their business operations. With the urgency to mitigate climate change risks as reported in the Intergovernmental Panel on Climate Change’s Sixth Assessment Report, everyone has an important role to play in averting a climate calamity.
 
Alert by To’ Puan Janet Looi (Partner) of the Environmental Law Practice and Tai Kean Lynn (Associate) of the Banking and Finance Practice of Skrine. 

---