Bank Negara issues Policy Document on Skim Pembiayaan Mikro

19 November 2024

Bank Negara Malaysia (“BNM”) issued its Policy Document on Skim Pembiayaan Mikro (Micro Finance Scheme) (“SPM”) (“Policy Document”) on 11 November 2024.

The Policy Document applies to:

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 Financial 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 authority;¹ or
a self-employed individual who undertakes his/ her own business activities to earn a living and his/ her business is not registered with a relevant authority outlined in the Guideline for SME Definition.²

The Policy Document came into effect on 11 November 2024 and supersedes the three documents listed in paragraph 7.1 of the Policy Document. It is to be read with the 21 documents listed in paragraph 6.1 of the Policy Document.

This article highlights 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 players within the microfinance ecosystem (e.g. Credit Guarantee Corporation Malaysia Berhad (“CGC”), CGC Digital Sdn Bhd (“CGC Digital”) and Agensi Kaunseling dan Pengurusan Kredit (“AKPK”)) 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 the Micro Enterprises Facility³ (“MEF”).

The SPM regulatory framework is complemented by six strategic enablers that are designed to play a pivotal role in ensuring the success and resilience of the SPM initiative, fostering a robust and sustainable environment within the broader microfinance landscape as set out in the table below:

Institutional Framework	Expand the microfinance institutional framework Include new institutions with financial inclusion mandate (e.g. digital banks) Include institutions that offer beyond direct microfinancing and debt instruments (e.g. CGC and CGC Digital)
Innovation	Scale up of technology driven innovations in microfinance business model and product Accelerate and promote adoption of e-payments via business bank account among microenterprise customers Adopt use of fintech in microfinancing application, origination, processing and monitoring
Awareness & Education	Strengthen MEs awareness and education on SPM Scale up tailored education and awareness programmes on SPM in collaboration with key external stakeholders and via ME touchpoints Embed education on various types of financing rate chargeable by FIs
Simplified Process & Procedures	Simplify application process and procedures of MEF Short term solutions – Reduce mandatory information required for application and introduce MEF upfront fund placement Mid-term solutions – Introduce Straight-Through-Processing (STP)
Capacity Building	Enhance structured capacity building for MEs Promote AKPK’s financial education modules and web-based financial management tool (MyBijakNiaga) Scale up collaborations between AKPK and PFIs in building MEs' capability
Basic Banking Services (BBS)	Expand outreach of BBS for MEs Enhance awareness among MEs on availability of BBS options for MEs Improve accessibility and effectiveness of BBS towards enhancing MEs’ capability to obtain financing from FIs

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, thereby enabling the FI to be recognised as a PFI of SPM:

maximum loan/ financing amount of up to RM100,000;
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
flexible collateral requirement whereby no collateral shall be required from MEs as a pre-condition to obtain the loan/ financing, except those outlined in paragraph 8.6 (i.e. de-risking instruments) of the Policy Document.

An FI intending to classify its product as an SPM product in order to be recognised as a new PFI of SPM or an existing PFI who wishes to classify additional products as an SPM product is required to comply with the notification 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 must notify BNM of its intention not less than five working days prior to the effective date of discontinuance or change in features in accordance with paragraph 13.3 of the Policy Document.

Notwithstanding the maximum loan/ financing amount of RM100,000 stipulated in the Policy Document, PFIs are encouraged to offer small financing of RM5,000 or less under SPM to provide continued access to microfinancing to the U/US segments that are in need of such financing amount.

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. For this purpose, a PFI may 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.⁴

De-risking instruments

As exceptions to the general prohibition against PFIs obtaining collateral from MEs as a pre-condition to obtaining the loan/ financing, PFIs are permitted under paragraph 8.6 of the Policy Document to require:

financial guarantee from third parties (which may include credit guarantee providers such as CGC and Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP)); and/or
contract or account receivables as collateral for contract financing or invoice financing.

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 shall disclose an indicative effective financing rate for an SPM product with a loan/ financing amount of RM100,000 and tenure of seven years to facilitate comparison and informed decisions by customers.

Incentives for PFIs

MEF

An FI intending to use MEF⁵ as its source of funding for SPM is required to comply with the notification procedures set out in paragraphs 13.1 and 13.5 of the Policy Document and Appendix 2 of the Dear CEO Letter on Enhancements to the Micro Enterprises Facility (MEF) issued on 11 November 2024.⁶

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 notification 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 MEs.

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 or reissued 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, processing and monitoring, such as through the use of automated credit decision and disbursement; and/or
introduce digital microfinancing products⁷ with greater outreach capabilities and service quality to provide convenient access to SPM, particularly for the U/US segments.

A PFI is encouraged to adopt alternative data or credit scoring methods to facilitate onboarding of SPM customers and supplement credit decision making for a more informed decision and may adopt digital solutions for self-reporting by SPM customers to facilitate progress and impact monitoring.

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.⁸

Microfinance Client Charter

A PFI is required to establish 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

flexible collateral requirement⁹;
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 availability of the SPM product at all microfinance access points (“MAPs”) that display the national microfinance logo.

A new PFI is required to submit a copy of its Client Charter to BNM within five working days of the PFI’s product being successfully classified by BNM as an SPM product.¹⁰

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:

notification to classify a product as an SPM product (paragraph 13.1);
notification to utilise MEF for funding SPM (paragraph 13.1);
notification of discontinuation of an SPM product (paragraph 13.3(a));
notification of change of features of an SPM product (paragraph 13.3(b));
submission of Client Charter (paragraph 13.4);
application to open a microfinance branch (paragraph 14.1); and
application to participate in BNM’s Financial Technology Regulatory Sandbox (paragraph 14.2).

Reporting requirements

Part C of the Policy Document also requires PFIs 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 15.1(a));
submit to BNM information regarding MAPs no later than 15 days after 30 June and 31 December of each year (paragraph 15.1(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 or reissued from time to time (paragraph 15.2); and
submit any other information on SPM or MEF as may be required by BNM from time to time (paragraph 15.3).

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.¹¹

Article by Lee Ai Hsian (Partner) of the Banking and Finance Practice and Tan Wei Liang (Senior Associate) of the Corporate Practice of Skrine.

¹ Refer to the Guideline for SME Definition issued by SME Corporation Malaysia for further details on the eligibility criteria. For the purposes of the Policy Document, ‘microenterprises’ include social enterprises and professional service providers that meet the definition of microenterprises under the Guideline for SME Definition.

² The Policy Document states that such individuals may include gig workers on digital platforms and participants in the iTEKAD programme (a programme for eligible low-income micro entrepreneurs).

³ 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.

⁴ Refer to paragraph 8.7 of the Policy Document for further discussion on risk absorbent fund.

⁵ MEF may be applied for through individual application (per customer basis) or upfront fund placement (portfolio basis).

⁶ It is to be noted that item 8 of Appendix 2 of the Policy Document stipulates that an FI shall pass to the SPM customer the cost-saving for SPM financing funded by MEF instead of the FI’s own funds.

⁷ Digital microfinancing product refers to microfinancing products that are delivered fully via digital channels.

⁸ Refer to paragraphs 12.2 to 12.6 of the Policy Document.

⁹ Refer to paragraphs 8.1(d) and 8.6 of the Policy Document for further discussion.

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.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

Search

Bank Negara issues Policy Document on Skim Pembiayaan Mikro