I. The emerging digital banking landscape

In 2014, the first concept of a digital bank emerged in Asia’s banking industry landscape, when the Chinese government awarded licenses to Ant Group’s MyBank and Tencent’s WeBank[1]. Within the next decade, growth and adoption of digital banks spread across both developed and developing economies in the broader Asia Pacific region, beginning with two of Asia’s highly developed financial systems, Hong Kong and Singapore, followed by other countries like South Korea, Japan, Indonesia, the Philippines.

Malaysia too has begun its own journey towards digital banking adoption in recent years. In April 2022, BNM issued digital banking licenses to five qualified recipients[2] comprising different groups of companies or consortia, of which three were awarded conventional licenses and the remaining two Islamic licenses. At the time of writing, three of these consortia have already begun commercial operations, while two more licensees are due to launch their respective banks by the end of this year, in alignment with the approved commencement date set by the ministry of finance for end 2024[3].

II. Pursuing the financial inclusion agenda

As part of its licensing requirements, BNM has given its digital bank license holders a clear mandate to meaningfully address financial inclusion gaps and provide digital banking services for underserved and unserved segments that face limited or no access to traditional banking financing[4]. In fact, commitment to financial inclusion was a key cornerstone criteria used by the Central Bank to assess the best interest of applicants in its licensing framework, besides other factors such as character and integrity, nature and sufficiency of financial resources, and the soundness and feasibility of business and technology plans[5].

The requirement for these digital banks to focus on financial inclusion and address gaps in underserved and unserved segments underscores the Central Bank’s larger aspirations to create an inclusive financial system, as well as to address financial barriers faced by the unbanked to ensure that financial services are accessible and available to all segments of society.

III. What can digital banks offer?

According to BNM’s Financial Capability and Inclusion Demand Side Survey 2021-2022, Malaysians are fast adopting digitalized financial products and services, based on mobile banking, internet banking, payment card and mobile payments usage[6]. Moreover, the 2021 Global Findex report from the World Bank showed that 79% of Malaysian adults use digital payments, and this increased use was accompanied by a rise in utilization of other financial services, including savings and lendings[7].

The high take-up rate of digitalized financial services reflects a wider pattern of transformation in the banking industry, driven by innovative business models and the widespread adoption of advanced technologies to create financial access points through digital experiences. In line with this, digital banks have great potential to

provide better accessibility to financial services for those with limited access to conventional banking facilities.

As digital banks operate through digital apps and platforms, they remove traditional barriers to obtaining services, particularly for populations in remote or rural areas that may face difficulties travelling to a physical branch to access banking services. Moreover, by offering services in-app, digital banks have the potential to transform certain face-to-face banking processes, such onboarding, transactions, financing and others, to become more streamlined and simplified.

Some digital banks have also ventured into “embedded finance” (a term for integrating banking services with nonfinancial apps and services) which serves to enable application procedures to be done in a shorter, more efficient processes. By refining the user onboarding experience and simplifying the end-to-end journey for users, digital banks can thus promote better financial inclusivity, by making banking less of a hassle and more accessible for customers that may be less financially literate.

On the same note, digital banks can also harness data analytics to identify customers’ specific pain points and tailor products that can meet their needs. Often, underserved communities do not require elaborate services early in their financial journey. For example, credit-poor groups may benefit more from “bite-sized” affordable financing products, such as micro-savings, micro-financing, and micro-insurance. Such ‘simplified’ products can help to provide greater financial inclusion to underserved communities, small businesses and consumers alike.

IV. Balancing financial inclusion commitments with ensuring profitability

In meeting BNM’s mandate of serving the financially underserved, one of the primary challenges faced by digital banks is the question of whether they will be able to meaningfully do so, while staying on track to achieve sustainable growth and profitability in the long-term.

For context, BNM has imposed an asset growth cap of RM 3 billion for digital banks to prove their viability during the foundational phase, before graduating to become a full-fledged bank[8]. However, even with this relatively modest threshold, digital banks may face significant challenges in scaling growth, especially when it comes to managing risks and balancing their assets and liabilities to provide services to underserved communities.

Compared to established financial institutions that already have mature ecosystems and established expertise across core business areas, digital banks are still in the nascent stages of evolution and finding their footing in the industry. As a start, they will need a sound business plan that includes strategies to remain sustainable, while also delivering on the agenda of financial inclusion.

V. Collaborate with like-minded Fintech partners to spur financial inclusion

One strategy that digital banks can consider adopting is to work with FinTech companies that can offer relevant support to meet the financial needs of the underserved and unserved segments, which is a key criteria established by BNM. While the current digital banking landscape in Malaysia predominantly offers deposits and payments as service offerings, the next step to widening financial inclusion would be to expand into providing loans to underserved communities, since accessibility to such credit facilities is a common pain point.

As the digital arm of Credit Guarantee Corporation Malaysia Berhad (CGC), CGC Digital aims to empower MSMEs by creating a simpler and more seamless financing experience in the digital ecosystem, and help to close the funding gap for these enterprises[9]. To date, it has over three years of accumulated experience in partnering with players in the digital finance ecosystem, combining expertise and co-creating accessible digital banking solutions for the underserved and unserved segments.

One such solution involves innovating CGC’s digital guarantee product to help bridge the gap for MSMEs in accessing credit facilities, and championing the alternative credit scoring approach to complement traditional credit assessments. This is done through harnessing digital technology such as AI and machine learning tools to gather information on spending habits and financial behaviour patterns of loan applicants that may lack formal credit history[10]. The “alternative credit scoring” approach, or ACS, integrates these alternative data points into credit assessments, and has been shown to be useful in expanding access for “thin-file” applicants, as it helps to form a more complete picture of their risk profiles.

Since its inception, CGC Digital has built up a strong track record of collaborating with like-minded partners in the FinTech ecosystem to enhance financing access for MSMEs and tackle the challenges in their growth journey. A key focus of CGC Digital is the development of innovative digital guarantee products through a digital-first approach. These digital guarantee products are designed to broaden the scope of services available, specifically targeting underserved and unserved markets, thereby fostering greater financial inclusion.

CGC Digital’s commitment to bridging the financial inclusion gap for MSMEs largely mirrors the mandate of digital banks to reach more underserved segments and provide them with access to financial services. This shared vision underscores the potential of both players aligning to become partners, and supporting each other to make a broader, wide-ranging impact in financial inclusion. By joining forces with CGC Digital through strategic partnerships and collaborations, digital banks may well unlock new opportunities to co-create value and enhance their effort to expand financing access for underserved segments, driving greater inclusion within Malaysia’s digital finance ecosystem in the long term.

Commenting on the company’s potential of collaboration with digital banks, Puan Yushida Husin, CEO of CGC Digital, said, “As a digital first tech startup, we share similar digital DNA with digital banks, and are committed to partnering with MSMEs throughout their life stages to drive their excellence through digital guarantees and other targeted forms of developmental support to scale their impact. We believe that we can bring a strong value proposition to the table for digital banks, as the digital banking business aligns with our own aspirations to promote financial inclusivity for MSMEs in support of their growth and development.”

In this regard, digital banks that leverage on CGC Digital’s expertise may stand to benefit from reducing their exposure to excessive risk while taking on “thin-file” MSMEs that are generally deemed to be riskier clients.

VI. BNM endorses stakeholder partnerships, in line with strategic policy thrust to advance financial inclusion

In its second Financial Inclusion Framework (FIF) 2023-2026, BNM emphasised the importance of strategic collaborations and partnerships between financial service industry players to drive financial inclusion.

The FIF, which serves as a four-year roadmap to advance financial inclusion, sets out wide-ranging strategies aimed at achieving broad development outcomes and elevating financial resilience and well-being for all Malaysian residents. Significantly, under Policy Objective 5 of the FIF, the Bank has underscored the importance of strengthening the role and capabilities of financial institutions in promoting financial inclusion. Among the strategies laid out to achieve this include facilitating “greater partnerships, collaborations and capacity building” among stakeholders in the financial services industry, as well as ensuring a conducive policy environment “for digital banks to evolve business models to effectively deliver on financial inclusion commitments.”[11]

Complementing this, in addressing the Malaysian SME National Conference 2024, BNM Deputy Governor Jessica Chew stressed that the path forward to deliver an effective financing strategy for SMEs would need to include, among others, a focus on developing and deepening alternative sources of financing. She further stated that the entry of digital banks and alternative fundraising platforms offering “different business models and innovative approaches to credit assessments” would contribute to the expansion and diversification of funding sources” for SMEs[12].

These sentiments indicate that the Central Bank recognizes the role of digital banks as a significant driver of financial inclusion and encourages strategic partnerships with industry stakeholders that can offer innovative solutions in expanding access for the unserved and underserved segments. In this regard, collaborating with a digital-first, forward-looking FinTech such as CGC Digital, with its innovative product offerings and strong commitment to empower financially unserved and underserved MSMEs, presents promising opportunities for digital banks.

At the end of the day, tapping into innovative partners and proven solutions can be a game changer for digital banks. Such collaborations enhance their capabilities to expand banking services to the underserved and unserved segments, while also aligning with the goal to become sustainable and thrive in the long run.

References:

1.  Frances Gagua, “Did Digital Banks Fail to Disrupt?,” Asian Business Review, March 28, 2023, https://asianbusinessreview.com/banking-technology/exclusive/did-digital-banks-fail-disrupt.
2. The five consortiums were Boost Holdings Sdn Bhd and RHB Bank Bhd; GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd; Sea Limited and YTL Digital Capital Sdn Bhd; AEON Financial Service Co, Ltd, AEON Credit Service (M) Bhd and MoneyLion Inc; and KAF Investment Bank Sdn Bhd.
3. GXBank was the first to launch in the market in the final quarter of 2023, by a consortium made up of Grab-linked GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd. Following this, two other digital banks opened its doors to the public in June: AEON Bank, a subsidiary of AEON Financial Service Co, Ltd; and Boost Bank, a joint venture between Boost Holdings Sdn Bhd and RHB Bank Bhd. The remaining two digital banking applicants that have yet to launch their digital banks are a consortium led by Sea Limited and YTL Digital Capital Sdn Bhd and a consortium led by KAF Investment Bank Sdn Bhd.
4. BNM, “Financial Inclusion Framework 2023-2026 Strategy Paper,” June 23, 2023, https://www.bnm.gov.my/documents/20124/55792/SP-2nd-fin-incl-framework.pdf.
5. “Five Successful Applicants for the Digital Bank Licences – Bank Negara Malaysia,” accessed June 27, 2024, https://www.bnm.gov.my/-/digital-bank-5-licences.
6. “Financial Stability Review First Half 2022,” 2022.
7. “The Global Findex Database 2021,” Text/HTML, World Bank, accessed November 1, 2024, https://www.worldbank.org/en/publication/globalfindex.
8. BNM, “Licensing Framework for Digital Banks,” December 31, 2020, https://www.bnm.gov.my/documents/20124/938039/20201231_Licensing%20Framework%20for%20Digital%20Banks.pdf.
9. “CGC Digital: Making Finance Inclusive and Accessible for MSMEs,” CGC Digital, accessed November 21, 2023, .
10. With their data driven approach, digital banks can assess financial transactions using non-traditional data sources such as payments, payroll and point of sale terminals on digital platforms. Data obtained from these digital transactions (sometimes called ‘digital footprints’) can be applied to alternative credit scoring frameworks to complement traditional credit scores, and create a more holistic picture of creditworthiness.
11. Bank Negara Malaysia, “Financial Inclusion Framework 2023-2026,” June 23, 2023, https://www.bnm.gov.my/documents/20124/55792/SP-2nd-fin-incl-framework.pdf.
12. “Deputy Governor’s Keynote Address at the Malaysian SME National Conference – Bank Negara Malaysia,” accessed June 27, 2024, https://www.bnm.gov.my/-/dgjc-spch-smenc24.

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KUALA LUMPUR, 20 MARCH 2025 – Boost Bank, the nation’s first homegrown digital bank has partnered with CGC Digital, a fintech subsidiary of Credit Guarantee Corporation Malaysia Berhad (“CGC”) to enhance support for eligible underserved Micro, Small, and Medium Enterprises (MSMEs) across Malaysia. Under this partnership, a total of RM130 million has been earmarked for Boost Bank’s financing solutions – Term Loan facility and Revolving Credit facility. 

CGC Digital will provide CGC’s guarantee cover through bundling with Boost Bank’s MSME financing solutions to further strengthen MSME access to finance. This offering aims to reach out to thousands of MSMEs and bridge the critical financing gap these businesses face, while enabling businesses to enhance operations and capitalise on growth opportunities. 

Boost Bank’s Term Loan financing offers MSMEs a convenient application process with minimal documentation required for loan amounts from RM50,000. The facility features a financing tenure of up to 36 months with no early settlement fees, facilitating effective cash flow management by MSME borrowers. Businesses can also enjoy flexible repayment options to be more in sync with their cash flow needs without incurring any penalty. 

The Revolving Credit financing offers MSMEs flexibility to manage their cash flow and rise to business opportunities with ease with its swift financing disbursement feature, which enables businesses to receive funds in as fast as two working days upon approval of the loan. 

Fozia Amanulla, CEO of Boost Bank, shared, “At Boost Bank, we understand the unique needs of MSMEs and the critical role financing plays in their growth. In line with our mission to drive financial inclusion and growth for underserved communities, we are committed to providing a platform that opens doors to growth, empowering businesses to overcome challenges and achieve success. This partnership with CGC Digital strengthens our ability to offer seamless, fast, and accessible financing solutions, empowering MSMEs to overcome challenges and seize growth opportunities. We will continue to innovate transformative offerings that will elevate the MSME landscape in Malaysia.”

“Boost Bank is our first digital bank partner, marking a significant milestone in our journey towards facilitating access to financing with digital-first partners. By collaborating with Boost Bank, we can offer seamless, efficient, and accessible financial products that cater to the unique needs of MSMEs,” said Yushida Husin, CEO of CGC Digital. “This partnership is a significant step forward in our mission to support underserved MSMEs by providing them with the financing they need to succeed. It also aligns perfectly with the purpose for which CGC Digital was established—collaborating with digital-first partners. We are excited about the potential this partnership holds and are eager to explore further collaborations with other digital-first players in the industry. Our goal is to continuously enhance our offerings, ensuring that we remain at the forefront of financial innovation.”

Boost Bank and CGC Digital are committed to addressing the needs of underserved MSMEs and promoting financial inclusion while ensuring MSMEs receive the support they need to thrive in today’s economy.

To learn more about Boost Bank, please visit www.myboostbank.co. For more information about CGC Digital, please visit www.cgcdigital.com.my. 

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Funding Societies is a regional financial technology (“FinTech”) company that provides financing to micro, small and medium enterprises (“MSMEs”), especially micro and small businesses currently unserved by existing financial institutions. Since its inception, Funding Societies has disbursed over US$3.5 billion (RM16 billion)[1] in business financing through five (5) million transactions, positively impacting over 100,000 businesses across its five (5) markets in Southeast Asia, namely Malaysia, Singapore, Indonesia, Thailand and Vietnam.

In the context of Malaysia, Funding Societies aims to address the RM90 billion [1] (US$19 billion) funding gap for MSMEs. Established in 2015, Funding Societies was one of the first companies to be registered as a Recognised Market Operator by the Securities Commission Malaysia.

With this investment, Funding Societies aims to expand its Malaysian coverage to areas beyond Kuala Lumpur, Selangor, Penang, and Johor. By the end of 2025, it targets to serve more than 25,000 MSMEs across Malaysia, thereby improving MSME’s access to financing, growth, and scalability while fostering job creation and income development for those employed by these businesses.

Moreover, the company intends to widen the reach of its Islamic financing solutions introduced in Malaysia earlier this year. Since its launch in May 2023, it has disbursed over RM100 million in Shariah-compliant financing in Malaysia.

Khazanah’s investment falls under its Dana Impak mandate, a fundamental pillar under its Advancing Malaysia strategy. The investment complements the government’s aspiration of enhancing MSMEs’ performance through greater access to financing, creating opportunities and promoting socioeconomic growth for rural, semi-urban and underserved communities with limited access to financial services.

In order to create a greater impact on the Malaysian MSME ecosystem, Khazanah’s investment in Funding Societies is made alongside CGC Digital. CGC Digital aims to advance financial inclusion through the development of innovative digital guarantee products as well as its own guarantee credit scoring model that can close the gap and address the pain points in micro and small businesses’ demand for financing. These nation-building initiatives target to level the playing field for MSMEs, especially thin-file MSMEs. To reinforce the partnership, Funding Societies will continue to collaborate with CGC Digital to provide digital guarantee products on its platform, which will further aid Malaysian micro and small businesses in getting financing in the long term. A digital-first approach through its digital guarantee product leveraging alternative data will allow micro and small businesses broader and more affordable access to financing.

Khazanah’s Managing Director, Dato’ Amirul Feisal Wan Zahir, said, “The investment in Funding Societies reflects our commitment to fostering financial inclusion and bridging the funding gap, especially within the MSME community. Being the backbone of Malaysia’s economy and contributing nearly half of the nation’s employment, MSMEs are both critical and critically underserved. Hence, this investment aligns with our mission of contributing to nationbuilding and socioeconomic growth”.

Feisal added that by supporting innovative platforms like Funding Societies together with CGC Digital, Khazanah aims to empower the MSME community, unlocking new opportunities to propel the nation in line with the MADANI Economy vision of improving socioeconomic outcomes for all.

Khazanah’s impact thesis was driven by the role of digital finance platforms, such as Funding Societies, in leading the delivery of comprehensive digital financing solutions to underserved MSMEs in Southeast Asia, enabling improved access to capital and fostering financial inclusion throughout the region.

Particularly for the Malaysian market, with Dana Impak’s investment, Funding Societies aims to have more than 50% of its annual loan disbursements from Shariah-compliant financing by 2025 – in line with the aspiration to support the growth of Bumiputera MSMEs.

Yushida Husin, CEO of CGC Digital, said, “CGC Digital sees this investment as a strategic win for Malaysian MSMEs. We share Dana Impak’s vision and believe that, by working together with Khazanah, CGC Digital can advance financial inclusion among underserved and unserved MSMEs in the digital ecosystem. CGC Digital seeks to push the envelope by developing a suite of innovative digital guarantee products for thin-file MSMEs that can be offered together with Funding Societies’ financing products to increase their chance of obtaining much-needed financing.”

The investment also follows the success of CGC Digital’s partnership with Funding Societies earlier this year, where a new guarantee product was developed via a pilot programme. The product provides Credit Guarantee Corporation Malaysia Berhad’s guarantee at the transactional level of Funding Societies’ digital supply chain financing, thereby directly supporting the business activities of MSMEs and advancing financial inclusion.

Datuk Mohd Zamree Mohd Ishak, Board Member of CGC Digital and the President and CEO of CGC Digital’s parent company, Credit Guarantee Corporation Malaysia Berhad, echoed the sentiment, saying, “By joining forces with Khazanah and Funding Societies, this strategic investment by CGC Digital shows CGC Group’s commitment to taking Malaysian MSMEs, especially thin-file MSMEs, to the next level.”

Co-founder and Group CEO of Funding Societies, Kelvin Teo, said, “We are honoured to receive support from Khazanah and CGC Digital, who share our conviction to impact and MSMEs. This is a testament to our commitment towards extending credit to reach more underserved MSMEs. We would also progressively offer MSMEs more cash flow management solutions to power their growth.”

He added that while MSMEs represent 97% of business establishments in Malaysia and contribute 38% to the gross domestic product (GDP)[2], this group still faces significant challenges in obtaining credit, as evidenced by the RM90 billion financing gap in Malaysia[3].

“This is where Funding Societies seeks to step in by serving the region’s MSMEs’ cash management challenges and needs with our extensive reach and broad range of short-term financing solutions,” Teo added.

About Khazanah Nasional Berhad

Khazanah is the sovereign wealth fund of Malaysia entrusted to deliver sustainable value for Malaysians. In line with its long-term strategy of Advancing Malaysia, Khazanah aims to deliver its purpose by investing in catalytic sectors, creating value through active stewardship, increasing its global presence, as well as building capacity and vibrant communities for the benefit of Malaysians.

For more information on Khazanah, visit www.khazanah.com.my.

About Dana Impak

Dana Impak, or impact fund, is an initiative by Khazanah and a key pillar under Khazanah’s Advancing Malaysia strategy to support investments that will increase the nation’s competitiveness and resilience in the evolving global environment, prioritising the creation of long-term societal value for Malaysians.

About CGC Digital

CGC Digital is a FinTech company, established as the digital arm of Credit Guarantee Corporation Malaysia Berhad. Registered in July 2022, our primary goal is to empower Micro, Small, and Medium Enterprises (MSMEs) by creating a simpler and more seamless financing experience in the digital ecosystem.

For more information about CGC Digital, please visit www.cgcdigital.com.my.

About Funding Societies 

Funding Societies | Modalku is the largest unified SME digital finance platform in Southeast Asia. It is registered with the Securities Commission Malaysia (SC), as well as licensed in Singapore, Indonesia, and Thailand, and operates in Vietnam. It is backed by SoftBank Vision Fund 2, SoftBank Ventures Asia, Sequoia Capital India, Alpha JWC Ventures, SMBC Bank, Samsung Ventures, BRI Ventures, Endeavor, SGInnovate, Qualgro, and Golden Gate Ventures amongst others. The FinTech company provides business financing to small and medium-sized enterprises (SMEs), which are funded by individual and institutional investors.

It was given the Digitalizing Services for Retail Participations award by the Securities Commission Malaysia during the INVESTSMART® FEST 2019, the Monetary Authority of Singapore (MAS) FinTech Award in 2016, the Global SME Excellence Award at the United Nations’ ITU Telecom World in 2017, KPMG Fintech100 in 2018, Brands for Good in 2019, and ASEAN Startup of the Year by Global Startup Awards in 2020. In 2021, it was honourably mentioned as Responsible Digital Innovator of the Year by the World Bank IFC SME Finance Forum and won the MAS ASEAN Fintech award for the second time. Most recently, it was awarded the Top Lending/Financing Startup at the Fintech Frontiers Awards Malaysia 2023.

For more information on Funding Societies Malaysia, please visit https://fundingsocieties.com.my. 

References

1. US$1 = RM4.62
2. Department of Statistics, Malaysia (2022)
3. Capital Masterplan 3, Securities Commission Malaysia

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Lack of a one-stop financing marketplace for MSMES in the digital ecosystem

Being a small business in today’s fast-paced digital world is a big challenge. Especially in the wake of the global pandemic, many small businesses, or MSMEs, have been left grappling with the challenges of pivoting from analogue to digital, and growing their business in an online world. A majority of business owners today inhabit a “digital ecosystem”, defined as a network of interconnected digital technologies, platform and services that interact with each other to create value for businesses and consumers[1].

Current rapid technological advancements in the financial services industry have led to the emergence of digital financial services (DFS)[2] and growth of various marketplaces and platforms offering various integrated solutions for different market segments. However, despite these rapid advances, it appears that there is still a lack of a viable one-stop digital solution that holistically addresses the unique financing needs and issues faced by MSMEs.

MSMEs face challenges accessing financing via traditional banking systems

The crucial role of MSMEs in driving Malaysia’s economic growth cannot be understated, considering that they make up 97.4% of business establishments and contribute 38.4% to the country’s total GDP[3]. In total, approximately 1.12 million business establishments in Malaysia are defined as MSMEs[3] and they employ 48.2% of the country’s population[4]. 

One of the most critical components for MSMEs to successfully scale their growth is good access to finance and lines of credit. Access to finance promotes good cash flow and financial flexibility, which in turn allows MSMEs to embrace new opportunities when they arise, while sustaining their current operations.

However, insufficient cash flow and working capital are common barriers to MSMEs’ growth aspirations. For many small businesses, opening a business banking account or applying for a loan can prove challenging due to having insufficient credit history and a lack of collateral. Moreover, MSMEs still face difficulties navigating complex financial regulations in the traditional banking system. Brought together, these hurdles negatively impact the financial health of MSMEs and thus, their potential for high growth and business expansion.

Benefits of digital platforms and ecosystems for MSME financing

With their growing significance in driving economic expansion, it is important to empower MSMEs with better access to financing and provide assistance to accelerate their business.

In this digital age, digital ecosystems or platforms can be a key catalyst to MSMEs’ growth and competitiveness, by providing them with easy, convenient access to diverse financing options and solutions that are tailored to their unique financing needs.

As an alternative to physical financing environments, digital platforms have several characteristics which make it faster and easier for MSMEs to get their needs met. At the start of development, many platform creators will choose to prioritise value creation for their target market. In other words, when creating the ecosystem, the focus is usually put solely on the customer and understanding their challenges and needs[1]. This allows for a more tailored approach to designing a system that is solutions-based and capable of addressing very specific problems or issues.

The second advantage of a digital platform is that they are largely data driven and have the ability to amass a wealth of information about processes and transactions that take place on the platform, to generate insights and make strategic decisions[1]. Data analytics is one of the most important factors for any digital ecosystem and assists tremendously in optimising platform efficiency.

Thirdly, digital platforms can also harness the power of automation technologies to make data-driven insights actionable and dynamic. In the context of digital financial services, machine learning algorithms may be used to streamline existing business processes, enhance productivity and empower collaboration through seamless knowledge transfer. Collectively, this serves to accelerate the high impact potential of the digital platform and enable it to provide greater value for its user base.

How CGC Digital is innovating a one-stop digital marketplace to spur financing access and targeted assistance for MSMEs

In 2018, Credit Guarantee Corporation (CGC) had developed and launched imSME, a financing and loan referral platform that was the first of its kind in Malaysia[5].

Back then, the main function of the platform was to aggregate financing information from financial institutions, agencies and alternative financiers[6]. Besides this, imSME also served to matchmake MSME users with compatible financing products and facilities and assist with applying for loan/financing from a single platform[5]. In short, imSME was designed to be a digital tool that could provide MSMEs easy and convenient access to information resources and financial services.

As a data and fintech subsidiary of CGC, CGC Digital is now pushing to further optimise the imSME platform into a fully integrated digital marketplace. With its strong commitment to advancing financial sector digitalisation via an MSME-centric approach, the fintech company aims to innovate the platform to become an embedded finance ecosystem[6] that can support MSMEs’ needs at each stage of their growth journey.

While the core services of providing information and financing assistance will remain, the optimised imSME ecosystem will also incorporate new expanded features, such as digital credit guarantee and other digital credit supplementation products and services[6], to make access to financing simpler and even more seamless for MSMEs. These features are ultimately aligned with the goal of transforming imSME into a comprehensive, one-stop digital financing marketplace for smaller entrepreneurs and business owners. 

Besides this, CGC Digital believes that partnerships with key players are essential to enable the imSME platform to offer higher value-added services to MSMEs. Thus, it will seek to identify and collaborate with relevant partners that can synergise with the platform’s ecosystem and contribute to co-creating value in different areas.

Through these efforts, CGC Digital’s ultimate vision for the imSME platform is to be a one-stop digital marketplace to pave the way for underserved MSMEs to have convenient access to financial services and support to accelerate their business.

Alignment with NIMP 2030

As a digital initiative that aspires help bridge the gap faced by MSMEs in accessing financing and drive greater financial inclusion, the imSME platform is highly relevant to the Madani government’s recently launched New Industrial Master Plan (NIMP) 2030.

The NIMP 2030 is a policy framework that lays out key goals and missions, as well as specific strategies and focuses aimed at driving Malaysia’s industrial development over the next seven years. Under the NIMP, CGC has been tasked to expand the imSME platform to show all available funding options, including government funding and those from the capital market, as part of a wider goal to mobilise a comprehensive financing ecosystem for SMEs[6].

CGC Digital not only embodies those goals, but is striving to take it a step further, by innovating imSME’s core product into a comprehensive digital financial services marketplace. By engaging with different partners to bring an array of financing products and digital services to the platform, it aspires to provide greater value to MSMEs through a targeted range of solutions tailored to meet MSMEs’ needs. Being a financial technology solutions provider, one of its goals is also to leverage AI and machine learning technologies to create a better customer experience for business owners, and enable a seamless, frictionless journey while on the platform.

With the imSME digital marketplace as its first milestone platform, CGC Digital is committed to continue spearheading digital innovation and to be a leading fintech solutions provider in the digital financial services ecosystem. It will continue to proactively innovate digital solutions to serve MSMEs better and grow alongside them to help them succeed.

References:

1. Talin, Benjamin. “What Is a Digital Ecosystem? – Understanding the Most Profitable Business Model,” December 9, 2020. https://morethandigital.info/en/what-is-a-digital-ecosystem-understanding-the-most-profitable-business-model/.
2. World Bank. “The Role of Digital Financial Services in Bridging the SME Financing Gap,” July 13, 2023. https://blogs.worldbank.org/psd/role-digital-financial-services-bridging-sme-financing-gap.
3. SME Corp. Malaysia. “Profile and Performance of MSMEs in 2022.” Accessed September 18, 2023. https://www.smecorp.gov.my/index.php/en/micro-enterprises
4. The Star Online. “Malaysia’s MSME GDP Surges 11.6% in 2022 to RM580.4bil -DOSM.” The Star. Accessed December 6, 2023. https://www.thestar.com.my/business/business-news/2023/07/27/malaysia039s-msme-gdp-surges-116-in-2022-to-rm5804bil–dosm.
5. CGC Malaysia. “About imSME.” imSME. Accessed December 6, 2023. https://imsme.com.my/portal/about-imsme/.
6. “New Industrial Master Plan (NIMP) 2030,” 2023. https://www.nimp2030.gov.my/nimp2030/modules_resources/bookshelf/NIMP_20303/index.html.

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This tripartite partnership signifies a collective commitment to address a key national-level Problem Statement, the RM90 billion financing gap to MSMEs. The digital tool to power the bridging of this funding gap will be the Alternative Credit Scoring, undertaken by CGC Digital as it explores possible alternative data to facilitate the development of its Alternative Credit Scoring model. This partnership will be led by CGC Digital in providing the digital guarantee developed for CGC, MDEC in connecting the fintech players and championing policies/frameworks, and PayNet in the utilisation of its payments data.

PayNet as the national payments network has over the years aggregated a sizeable data through its product range – DuitNow (also known as Malaysia’s National QR Code), JomPAY and FPX. MSMEs who are not SSM registered but may have registration under local councils could have transaction data in any of these data points. “Collaborating with MDEC and PayNet, CGC Digital has identified potential fintech companies to embark on proof-of-concept initiatives aimed at validating the effectiveness and viability of Alternative Credit Scoring model. This initiative is aimed to empower MSMEs and bridge the financing gap by democratising access to credit guarantee and financial services in advancing financial inclusion,” adds Yushida Husin, CEO of CGC Digital.

Ts. Mahadhir Aziz, CEO of MDEC says, “This collaboration is a testament to our commitment to drive innovation in the financial sector and address the MSMEs financing gap. The Malaysia Digital (MD) national strategic initiative and suite of dynamic PeMangkinMD programmes aim to transform our nation’s digital capabilities, foster the growth of tech companies, and boost the digital economy. We are optimistic to facilitate more partnerships between financial institutions, fintech companies and relevant ecosystem partners with a common goal of revolutionising credit assessment methods which will be a game changer for the financial sector”.

This MOU is envisaged to spark ideas to promote and scale more pilots using Alternative Credit Scoring data points among industry players. According to Gary Yeoh, Chief Commercial Officer of PayNet adds, “Validation of Alternative Credit Scoring’ effectiveness as a complementary tool in the credit assessment of businesses across all sizes will catalyse new frontiers on how credit is assessed. This could be a tipping point in a much-needed financing ecosystem where traditional banks are limited by conventional credit scoring tools”.

Using innovative solutions, e.g. artificial intelligence, machine learning, etc., for insights and data from non-traditional sources such as transaction data, utility and assessment payments, rental payments, mobile payments and more can potentially be used to assess MSMEs’ creditworthiness based on historical payment records. Collectively, all parties are cognisant of the opportunities that can be crystalised through Alternative Credit Scoring. The ability to co-create a data sharing environment that supports: 1) Thriving community of fintech companies; 2) Accessibility of financial products across all businesses and people; and 3) Customisation of financial products and services will revolutionise Malaysia’s future financial landscape.

About MDEC

Malaysia Digital Economy Corporation (MDEC), a government agency under the purview of the Ministry of Communications and Digital, was established in 1996 to lead Malaysia’s digital economy. Beginning with the implementation of the MSC Malaysia initiative, we have since then catalysed digital transformation and growth all over the nation. By offering greater incentives and governance for growth and re-investment, we aspire to bolster Malaysia’s status as the digital hub of ASEAN, opening new doors and driving shared prosperity for all Malaysians.

For more information on MDEC, please visit www.mdec.my.

About CGC Digital

CGC Digital is a FinTech company, established as the digital arm of Credit Guarantee Corporation Malaysia Berhad. Registered in July 2022, our primary goal is to empower Micro, Small, and Medium Enterprises (MSMEs) by creating a simpler and more seamless financing experience in the digital ecosystem.

For more information about CGC Digital, please visit www.cgcdigital.com.my.

About PayNet

Payments Network Malaysia (PayNet) is the national payments network and central financial infrastructure for Malaysia with the vision to empower Malaysia’s digital economy. Our extensive retail payments suite, DuitNow (QR and P2P), JomPay (Bill Payments), FPX (Online), MyDebit (Domestic Debit), MEPS (ATM), and IBG (Interbank GIRO) has near ubiquitous coverage across the nation and is part of the daily fabric of life in Malaysia. In addition, PayNet’s real time retail QR payments network, DuitNow is also interoperable with domestic schemes in Singapore, Thailand and Indonesia as well as international schemes to enable seamless cross-border transactions.

PayNet is committed to promoting a secure, efficient, and innovative payments ecosystem in Malaysia, and works closely with its stakeholders to develop new products and services that meet the evolving needs of consumers and businesses.

For more information, please visit www.paynet.my.

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