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APPROXIMATELY 70% of small and medium-sized enterprises (SMEs) in South-East Asia kick-start their ventures using personal savings and contributions from family and friends, with only 23% relying on traditional bank funding, while the remaining 7% turn to alternative sources like fintech companies, as revealed in a report from Funding Societies Malaysia.
This insight emerges from a survey of nearly 1,000 SMEs across Malaysia, Singapore, Indonesia, Thailand and Vietnam, conducted by Funding Societies, which operates in these countries, encompassing micro-businesses, (74%) led by business owners themselves (63%), including both Funding Societies customers (59%) and non-customers (41%).
Despite recent macroeconomic challenges, South-East Asia is in the process of economic recovery following pandemic-related contractions, and innovative financial solutions from both traditional and digital companies are emerging to support SMEs.
However, the report noted that the abundance of options doesn’t necessarily translate into easier access to finance.
According to Funding Societies country head Chai Kien Poon, the SME Digital Finance and Payments Behaviours: South-East Asia Report 2023 provides insights into the challenges and opportunities encountered by Malaysian MSMEs.
The report, he said, underscores the necessity for innovative financial solutions tailored to meet the specific needs of Malaysian MSMEs, who primarily rely on personal savings and family support for startup capital.
“Access to financing remains a critical concern for Malaysian MSMEs, and the report highlights the role of fintech platforms like Funding Societies in bridging this gap. As we navigate the post-pandemic economic recovery, this report serves as a roadmapfor policymakers and financial institutions to better serve the Malaysian MSME segment, ensuring they have the tools and resources needed for success in a constantly evolving business landscape,” he added.
Bank transfers remain the most common payment method for SMEs, with nearly 90% using them for both supplier payments and customer receipts.
However, cash transactions still play a substantial role, with 51% of respondents in Indonesia making supplier payments, and 63% of respondents in Malaysia receiving customer payments through cash transactions.
Although most transactions are local, 20% of respondents indicated the importance of cross-border transactions, with Singapore and Vietnam displaying a higher frequency of such transactions.
Business term loans are the preferred choice among SMEs, with 49% of respondents favour- ing them, except in Singa- pore and Vietnam, where card payments are more common
(51% and 49% respectively). These loans contribute significantly to SME finances, with 41% of respondents indicating their significance, particularly in Indonesia (66%) and Malaysia (63%). Singaporean SMEs, on the other hand, rely more on credit card payments (33%).
Most SMEs express concern over payables, particularly their ability to pay suppliers.
Over a third of respondents prioritise access to financing, including loans and credit cards, and ensuring payments to suppliers who may not offer flexible options.
Other concerns include monitoring and reporting payables, securing payment approval, and matching invoices with purchase orders and receipts, with Singapore being the exception, as respondents there consider receiving payment from customers a more pressing issue.
Among other behaviours, the largest expenses for SMEs across the region are daily operations (32%) and inventory and supplies (32%), with Vietnam deviating slightly by listing employees’ salaries as the next significant expense.
Low-interest rates significantly influence SMEs to switch brands, particularly in Singapore, where 62% of SMEs in the region express a likelihood to switch brands due to dissatisfaction with the provided experience, with Indonesia and Singapore showing the highest likelihood of brand switching.
Source: https://themalaysianreserve.com/2023/10/16/se-asia-smes-depend-on-personal-savings-family-for-start-up-capital/