In Southeast Asia, about 70 percent of small and medium enterprises (SMEs) started their business with seed money raised from their personal savings and from family and friends’ financial support, said a report published by Funding Societies, a Southeast Asia’s unified SME digital finance platform.
According to the SME Industry Report, the funding from traditional banks consists of 23 percent while the remaining 7 percent turned to alternative sources such as FinTech companies.
SMEs in Malaysia had the weakest access to traditional bank financing (17 percent) and alternative lenders (3 percent), and were the most dependent on personal savings (66 percent) and support from family and friends (13 percent).
Those in Vietnam had the strongest access to alternative lenders (25 percent), while only SMEs in Indonesia (3 percent) and Singapore (2 percent) secured funding from investors.
The study also found that cash flow remains a key SME concern, with many spending most of their funds to support daily operations and buy inventory and supplies, and worrying about paying suppliers and receiving payment from customers on time.
These concerns are further aggravated by seasonal cash flow fluctuations, when festive seasons increase consumer demand and raw material prices, and end-of-year objectives to complete ongoing projects and implement new ones call for an infusion of funds.
According to the report, funding from traditional banking and financial institutions remains inaccessible to many, mainly due to difficult requirements and long processing times, and most SMEs have to start their business using their own savings and with help from family and friends.
It is noted that their additional funding typically comes from business term loans and credit card payments.
Those who borrow from alternative lenders, however, are not especially brand-loyal: almost half are not highly satisfied with their current providers and are, thus, actively seeking alternatives with a smoother brand experience and lower prices.
These findings reveal a gap in the market for better financing options tailored to SMEs, ones that are more accessible than traditional financing sources and offer a low price, great brand experience, and fast approval.
SMEs’ choice of provider, however, may not boil down to primarily just cost: although most SMEs, with the exception of respondents from Indonesia, prefer low interest rates over a quick processing time, the urgent need for a healthier cash flow to support day-to-day operations and stock up on inventory means there’s space for providers that offer fast approvals.
Overall, SMEs continue to face the same cash flow-related challenges that SMEs before them have experienced.
Thus, innovative digital financing solutions, developed with Southeast Asia’s SMEs in mind, may be what the sector needs to solve these persistent old problems.
Meanwhile, despite the current global economic downturn triggered by a chain of “severe and mutually reinforcing shocks” – the pandemic, the Ukraine war, high inflation, debt tightening, food and energy crises, and the climate emergency – most of the
SMEs they surveyed (68 percent) remain confident about the future of their business.
SMEs in Vietnam were the most pessimistic, while those from Thailand were the most optimistic.
There was no significant difference among SMEs in Indonesia, Malaysia, and Singapore in terms of business confidence.
“It’s evident from the report that the majority of MSMEs in Malaysia still rely on personal savings and family support for startup capital,
“This underscores the need for innovative financial solutions tailored to the specific needs of Malaysian MSMEs,” said Chai Kien Poon, Country Head of Funding Societies Malaysia.
He further added that the access to financing remains a critical concern for Malaysian MSMEs.
“The report reinforces the importance of FinTech platforms like Funding Societies in bridging this gap and providing MSMEs with the necessary financial support to grow and thrive,
“As we continue to navigate the economic recovery post-pandemic, this report serves as a roadmap for both policymakers and financial institutions to better serve the Malaysian MSME segment, ensuring they have the tools and resources they need to succeed in an ever-evolving business landscape,” he said.
Funding Societies surveyed nearly 1,000 SMEs in Malaysia, Singapore, Indonesia, Thailand and Vietnam.
The report comprises respondents under the SME category, including micro (74 percent) and are business owners themselves (63 percent) – surveying both customers of Funding Societies (59 percent) as well as non-customers (41 percent).
Funding Societies raises $27 million in debt funding from institutional investors