How RHB Bank aims to plug Malaysia's $20b SME funding gap

The bank aims to extend $7.5b in new and additional loans for SMEs by 2021.

Despite contributing more than a third to GDP and accounting for 66% of employment in Malaysia, SMEs have long struggled to access the necessary financing fuel to grow their business, a story common across ASEAN. Without the necessary assets that can be used as collateral and the heavy costs associated with tapping the capital markets, SMEs face a crippling funding gap estimated at around $20b (RM80m) by the SME Corp of Malaysia.

Jeffrey Ng Eow Oo, group business and transaction banking head at RHB Banking Group, seeks to turn this narrative around by widening the range of financing options for credit-short SMEs with the goal of extending $7.6b in new and additional financing to SMEs by 2021. To date, RHB has connected over 100,000 SMEs through its cash management and digital solutions and aims to connect to 15,000 new SMEs before the year ends.

In an exclusive interview with Asian Banking & Finance, Ng outlines the bank’s vision for the segment as it draws on its experience as the first local bank to embark on programmed lending for SMEs.

What is your value proposition to emerge as the preferred corporate partner for Malaysia’s small businesses?
Our vision is to be the preferred SME and Transaction Bank in Malaysia. In order to achieve this lofty ambition, we have to have a passionate drive in simplifying customer journeys in order to deliver great engagement experience. We currently invest significantly in digital banking and have gone Agile to push us towards that goal. We want to differentiate ourselves by ensuring we deliver simple, fast and seamless solutions consistently.

Our focus under the bank’s FIT22 strategy is to focus on growing small businesses in Malaysia. Whilst other Banks are also embarking on this, we have great experience in coming out with tailored programs to meet different financing requirements for a variety of business segments.Continuing to win in the SME space is a key area in the Bank’s FIT22 strategy. We are aiming to [have SME loans] make up 20% of the bank’s domestic lending [portfolio] by 2022.

The digital credit opportunity for SMEs is massive with Oliver Wyman estimating the opportunity at around US$15b for markets like Indonesia and roughly US$5b even for small domestic markets like Singapore. What are the bank’s specific initiatives around this area to improve access to financing for credit-short SMEs?
Today, we focus on addressing this gap through credit risk partnerships with the government to continuously expand our inclusion. We have also introduced a digital enabled platform called SME Online Financing where small businesses can digitally apply for up to $125,000 (RM500,000) within 10 minutes and with just two documents. We strive to keep applicants updated on their status through the portal and, if successful and documentation is place, money in the bank within a week. Within a year of our launch, we have received north of RM100M worth of applications.

We are very encouraged by the results and aim to continue improving this digital channel. Self-serve digitally enabled financing application will be a significant acquisition channel.

How do you assist the SME sector in terms of cashflow management? What are specific efforts to improve transaction problems faced by SMEs? 
We have a range of products from small ticket unsecured financing, corporate/purchase cards to government backed financing to meet various cashflow needs of SMEs.

Also read: RHB rolls out digital token for SMEs and corporates

Analytics plays an important role in enabling us to serve our customers better. Models enable us to better anticipate needs of our customers with various personas. In 2017, we launched our Financial Supply Chain platforms that allows a seamless financing of supply chain electronically. We are actively supporting various communities in their supply chain financing.

As for advisory, today our RMs are equipped with an I-Smart tablet-based tool that enables them to manage their leads and dispense product information digitally. The tool also enables RMs to do live simulations for customers so that they better understand the solutions that fit them, features of the products and where they stand versus their industry peers.

We are also proud to be the first bank in Malaysia to launch an Application Programme Interface (API) with a cloud accounting provider. This allows a two-way feed that gives customers access to combined dashboards, automated payments and reconciliation. This fundamentally changes the way they run their business and enables us to better meet their cashflow needs.

Banks have been facing competition from alternative financing platforms that offer credit to SMEs without the rigorous verification processes by traditional lenders. What are your thoughts on this development and how does RHB Bank future-proof itself from this rising challengers?
For starters financial intermediation has changed with the rise of technology. Fintechs are here to stay. I believe the industry will converge where banks are already becoming more nimble with heavy investment in technology and methodology changes. RHB started our digital transformation program back in 2017 and have seen innovative market leading solutions being rolled out in digital banking, mortgages and SME space. With the bank going Agile@Scale, we believe it will better future proof us.