- a licensed bank (including a licensed digital bank) under the Financial Services Act 2013 (“FSA”);
- a licensed Islamic bank (including a licensed Islamic digital bank) under the Islamic Financial Services Act 2013 (“IFSA”); and
- a prescribed development financial institution under the Development Finance Institutions Act 2002,
(severally an “FI” and collectively “FIs”).
More specifically, the Policy Document will apply to FIs that participate, or seek to participate, in SPM (“PFI”) by offering products that satisfy the criteria set out in paragraph 8.1 of the Policy Document (“SPM products”) to microentrepreneurs (severally an “ME” and collectively “MEs”).
An ME, as defined in the Policy Document, is:
- an entity which has a sales turnover of less than RM300,000 or employs less than five employees and is registered with a relevant authority1; or
- a self-employed individual who undertakes his/ her own business activities2 to earn a living and his/ her business is not registered with a relevant authority.
The Policy Document will come into effect on the date of its issuance and supersede the two documents listed in paragraph 7.1 of the Policy Document. It is to be read with the 20 documents listed in paragraph 6.1 of the Policy Document.
In this article, we will highlight some of the salient provisions in the Policy Document.
OBJECTIVES
Following from the initiatives in the Financial Sector Blueprint 2022-2026 to reinforce the finance ecosystem for MEs while promoting an inclusive and sustainable microfinance sector within Malaysia’s financial system, BNM seeks to enhance the SPM framework to achieve the following desired outcomes:
- higher access to and take up of financing by MEs from PFIs;
- better outreach and service quality by PFIs to MEs, particularly to the unserved or underserved segments (“U/US segments”);
- wider options of financing products and non-financial services (e.g. capacity building programmes) for MEs to support upward migration;
- improved capability of MEs to secure loan/ financing and to allow PFIs to accurately assess the MEs; and
- more vibrant landscape with greater participation by FIs and players3 within the microfinance ecosystem offering innovative products and non-financial services.
The enhancements to the SPM framework outlined in Parts B and C of the Policy Document which FIs are required to comply with are as follows:
- Part B – consolidated, revised and proportionated policy requirements to provide a more enabling and fit-for-purpose regulatory framework for the implementation of SPM; and
- Part C – revised operational requirements to be undertaken by FIs before and during their participation in SPM and for the utilisation of Micro Enterprises Facility4 (“MEF”).
PART B – POLICY REQUIREMENTS
Skim Pembiayaan Mikro
Eligibility criteria for SPM Product
An FI with one or more product(s) that fulfils all of the following criteria, as set out in paragraph 8.1 of the Policy Document, is eligible to classify the product(s) as microfinance product(s) under SPM, thus enabling the FI to be recognised as a PFI of SPM:
- minimum loan/ financing amount of RM5,0005;
- maximum loan/ financing amount of up to RM50,000;
- the purpose of the loan/ financing is for business activities, including working capital and/or capital expenditure;
- the loan/ financing is offered to MEs; and
- collateral is not required from MEs as a pre-condition to obtain the loan/ financing.
An FI intending to classify its product as an SPM product is required to comply with the application procedures set out in paragraphs 13.1 and 13.5 of the Policy Document.
Existing products approved by BNM under SPM shall be deemed classified as SPM products and the PFIs offering such SPM products shall be subject to all requirements of the Policy Document.
A PFI must ensure that a product that has been classified as an SPM product must at all times continue to fulfil the eligibility criteria stipulated in paragraph 8.1. A PFI that intends to discontinue or change the features of any SPM product or product line must notify BNM of its intention not less than 14 working days prior to the effective date of discontinuance or change in accordance with paragraph 13.3 of the Policy Document.
Source of Funding
A PFI has the discretion to determine its source of funding to finance SPM customers, including but not limited to social and/or commercial funds and MEF. A PFI is strongly encouraged to use funding sources that could deepen its reach to the U/US segment and/or lower the cost of financing for MEs.
De-risking instruments
A PFI may establish a financial or credit guarantee arrangement with third parties for risk sharing of the SPM loan/ financing on individual or portfolio basis to enhance access to financing. This may include the use of guarantee from credit guarantee providers such as Credit Guarantee Corporation Malaysia Berhad (CGC) and Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP).
A PFI may also establish and use risk-absorbent funds to provide more accessible, affordable, and flexible SPM loan/ financing to vulnerable segments that face challenges in accessing or fulfilling obligations as customers of commercially driven microfinance.
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Business conduct
A PFI may require its existing and prospective SPM customers to utilise non-financial value-added services as a condition before or after obtaining microfinance under SPM, and to report data or information on business performance for impact monitoring by the PFI. Any cost arising from the non-financial value-added services that are passed on by PFIs to SPM customers must be affordable.
The Policy Document requires a PFI to provide adequate explanation and refer unsuccessful ME applicants to Khidmat Nasihat Pembiayaan (MyKNP)@CGC, a platform that provides advisory services and alternative sources upon rejection of ME applications to have access to loan/ financing.
Disclosure of Financing Rate
A PFI shall specify the type of financing rate chargeable in advertisements, marketing materials and the Product Disclosure Sheet (PDS), and to disclose an indicative effective financing rate based on a loan/ financing amount of RM50,000 and tenure of five years to facilitate comparison and informed decisions by customers.
Incentives for PFIs
MEF
An FI intending to use MEF
7 as its source of funding for SPM is required to comply with the application procedures set out in paragraphs 13.1 and 13.5 of the Policy Document.
A PFI that obtains funding at concessionary rate under MEF shall ensure that the cost savings from the lower funding cost of MEF is passed on to SPM customers through the loan/ financing to be extended to the SPM customers.
Stamp Duty Exemption
An instrument of agreement for a loan/ financing between a PFI and a customer under SPM for an amount not exceeding RM50,000 is eligible for stamp duty exemption under the Stamp Duty (Exemption) (No. 4) Order 2011 [P.U.(A) 446/2011]. For this purpose, a PFI shall ensure that its SPM product name in the loan/ financing agreement is the same as that submitted to BNM as part of the information submitted with the application to BNM to classify the FI’s product as an SPM product.
Microfinance delivery channels
Microfinance branches
A PFI which is a locally incorporated foreign bank (“
participating LIFB”) is allowed to establish up to ten microfinance branches in Malaysia, subject to BNM’s prior approval under section 25 of the FSA and section 22 of the IFSA respectively.
A microfinance branch of a participating LIFB can only offer SPM products as outlined under paragraph 8.1 of the Policy Document. The establishment of additional microfinance branches by a participating LIFB is subject to the effectiveness of the existing ten branches in serving microenterprises.
Leveraging on agents
In addition to the services specified under paragraphs 8.6 and 8.8 of BNM’s Policy Document on Agent Banking issued on 16 June 2022 as may be amended from time to time, a PFI may appoint agents to provide the following microfinance-related services, electronically or otherwise, on its behalf without BNM’s prior approval:
- acting as an alternative customer interface;
- providing referral/ leads on microfinance application to the PFI; and
- facilitating due diligence on customer identity for microfinance application via devices/ system connected to PFI’s back-end system on behalf of the PFI.
A PFI using agents to provide microfinance-related services must comply with the requirements set out in paragraphs 10.6 to 10.8 of the Policy Document.
Digitalisation and technology-driven innovations
The following are among the digitalisation and technology-driven initiatives that a PFI is encouraged to adopt to enhance efficiency and effectiveness of SPM:
- scale up technology driven innovations in their microfinance business model and products;
- accelerate and promote adoption of e-payments via business bank accounts among its ME customers, to improve MEs’ traceability and track record building;
- adopt the use of fintech in microfinancing application, origination and processing, such as through the use of automated credit decision and disbursement; and/or
- introduce digital microfinancing products8 with greater outreach capabilities and service quality to provide convenient access to SPM, particularly by the U/US segments.
Microfinance logo and client charter
National Microfinance Logo
The Policy Document sets out various mandatory and voluntary measures to be taken by PFIs to promote awareness of SPM through the use of the national microfinance logo, as well as control measures on the manner in which the logo is to be used.
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Microfinance Client Charter
A PFI is required to prepare a Microfinance Client Charter (“
Client Charter”) which emphasises on the easy, fast and convenient features of the SPM product and states, at least, the following salient features:
Easy
- collateral is not required for SPM loan/financing up to RM50,000;
- the application form is simple and easily understood;
- the eligibility criteria; and
- the necessary documents which must be provided by applicants.
Fast
- subject to the receipt of complete documentation from the applicants, the duration for a PFI to approve an application must, on the average, not exceed six working days;
- subject to acceptance by all parties of the relevant legal documentation and/or completion of training, the duration for a PFI to disburse the loan/ financing must, on the average, not exceed four working days.
Convenient
- The SPM product is available at all microfinance access points (“MAPs”) that display the national microfinance logo.
A copy of the Client Charter is to be submitted to BNM.
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PART C – OPERATIONAL REQUIREMENTS
Application and Notification Procedures related to SPM and MEF
Part C of the Policy Document sets out the types of applications and notifications (including the addressee thereof) that may be submitted under the Policy Document, namely:
- application for classification of a product as an SPM product (paragraph 13.1);
- application to utilise MEF (paragraph 13.1);
- notification of discontinuation of an SPM product or product line (paragraph 13.3(a));
- notification of change of features of an SPM product or product line (paragraph 13.3(b));
- submission of Client Charter (paragraph 13.4);
- application to open a microfinance branch (paragraph 13.6); and
- application to participate in BNM’s Financial Technology Regulatory Sandbox (paragraph 13.7).
Reporting requirements
Part C of the Policy Document also requires PFI to
- submit to BNM monthly status report of SPM, Lending Financing Rate/ Lending Financing Rate Islamic (LFR/LFRI) and MEF no later than 15 days after each reporting month unless otherwise specified by BNM (paragraph 14.1(a));
- submit to BNM information regarding MAPs no later than 15 days after 30 June and 31 December of each year (paragraph 14.1(b));
- submit and update the information pertaining to SPM and MEF in the Central Credit Reference Information System (CCRIS) in accordance with the requirements of BNM’s Policy Document on Central Credit Reference Information System (CCRIS) issued on 15 December 2022 as may be amended from time to time (paragraph 14.2); and
- submit any other information on SPM or MEF as may be required by BNM from time to time (paragraph 14.3).
GUIDANCE ON UNSERVED AND/OR UNDERSERVED MES
Appendix 1 of the Policy Document sets out helpful guidance on categories and examples of U/US segments.
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DEADLINE FOR SUBMISSION OF FEEDBACK
Feedback on the exposure draft of the Policy Document is to be submitted in writing to BNM by
5 April 2024.
Article by Lee Ai Hsian (Partner) of the Banking and Finance Practice and Tan Wei Liang (Senior Associate) of the Corporate Practice of Skrine.
2 According to the Policy Document, such individuals may include gig workers on digital platforms, participants in the iTEKAD programme (a programme for eligible low-income micro entrepreneurs) and social enterprises that comply with the definition of microenterprises.
3 Examples of these other institutions within the microfinance ecosystem cited in the Policy Document are Credit Guarantee Corporation Malaysia Berhad, CGC Digital Sdn Bhd (CGC Digital), Agensi Kaunseling dan Pengurusan Kredit (AKPK).
4 The Micro Enterprises Facility is a facility under BNM’s Fund for SMEs that is channelled through PFIs of SPM with the objective of increasing access of collateral-free loan/ financing for MEs.
5 The Policy Document states that FIs are encouraged to offer an SPM product with a minimum loan/ financing amount of less than RM5,000.
6 Refer to paragraph 8.7 of the Policy Document for further discussion on risk absorbent fund.
7 MEF may be applied for through individual application (per customer basis) or upfront fund placement (portfolio basis).
8 Digital microfinancing product refers to microfinancing products that are delivered fully via digital channels.
9 Refer to paragraphs 12.2 to 12.6 of the Policy Document.
10 Paragraph 13.4 of the Policy Document.
11 The guiding principles in Appendix 1 are aligned with the principle-based guidance on the financially unserved and underserved under BNM’s Strategy Paper on Financial Inclusion Framework 2023-2026.