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MSME’s Financial Inclusion Driven by Digital Bank and e-Commerce

MSME's can soar with a well-implemented digital banking system

by Shah Farouq
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A well-implemented digital banking system will propel the economy and encourage further financial inclusiveness that will allow for greater participation of micro, small and medium enterprises (MSME’s).

This summed up the discussion at the World Islamic Economic Forum (WIEF) Foundation’s latest Powertalk webinar session that took place yesterday.

The forum titled “Digital Banking: Driving Financial Inclusion for MSMEs” the webinar featured three role-players, Professor Dr Nafis Alam, Head of School of Business at Monash University Malaysia, Ms Yeoh Xin Yi, Head of Financial Risk Management and Fintech/Digital Banking Leader, KPMG Malaysia and Mr Alain Yee, Head of ShopeePay Malaysia, who shared insights on the constraints faced by MSMEs and the role of digital banking in overcoming these challenges.

Xin Yi noted that digital banks have the potential to fill the void that is within our economic environment especially if the recipient of the license already has an existing pool of clients, consisting of MSME’s, within a digital ecosystem.

‘With a warm base, the digital bank can leverage on existing data and build advanced analytics to understand the profiles of specific segments, thereby understanding the MSMEs’ needs better.

‘Digital banks may also extend solutions beyond pure financial services, as MSMEs often require more than just financial support, to grow,” she said.

Banking institutions are presently the primary source of financing for MSME’s. However, there is a pool of unserved businesses that do not qualify for credit facilities due to various reasons such as inconsistent income generation, lack of credit history and quality collateral amongst others.

Dr Nafis commented that the digital banking brings with it the prospect of extending financial services and facilities to these underserved groups such as MSME’s. It is not here to replace conventional financial institutions but to complement them.

“The usage of e-wallets, e-hailing, online food delivery as well as activities on e-commerce platforms generate digital financial footprints of MSME’s and consumers, which can be utilised by digital banks for a new credit scoring mechanism.

“Hence, allowing them to extend their offering to underserved communities and groups such as MSME’s, to create a more inclusive and sustainable economy,” he added.

Commenting on the role of e-commerce in fostering financial inclusiveness, Alain shared that Shopee has a strong technological infrastructure of integrated services such as logistics, payment solutions, marketing tools like Shopee Live, seller support programmes and its free Shopee University classes to make it easy for sellers to come online.

According to Alain, Shopee has also ensured that even the unbanked can transact digitally on the platform by partnering with 7-Eleven and KK Supermart for cash payments and mobile wallet ShopeePay top-ups.

“Additionally, the adoption of ShopeePay by petty traders at Ramadan bazaars, night markets, roadside burger stalls and those in rural areas will open doors for them to capture a growing audience who prefer contactless payments.

“By merging valuable insights and data, we are able to empower and enable local MSME’s to pivot their businesses online, or venture into the digital realm by broadening access to the benefits of the digital economy to everyone in Malaysia.

“Now, with the ecosystem that they are on, imagine the possibilities these businesses can achieve – they can create an improved and sustainable livelihood for themselves and those around them as they scale with access to fintech solutions,” he explained.

Dr Nafis further comment that e-commerce platforms, when coupled with digital banking, can be the game-changer for financial inclusion in Malaysia with the creation of new income streams and job opportunities.

“On top of that, they also address the income gap between urban and rural communities by providing a level playing field for all,” he emphasized.

Many e-commerce platforms also provide e-wallets as extensions, which further precipitate financial inclusion. This is an early indication that financial inclusion can indeed be achieved through the digital economy, with innovations such as e-commerce platforms, e-wallets and strengthening of logistics infrastructure.

Sharing findings from KPMG Malaysia’s report, Digital Banking Malaysia: The Inclusive Agenda, Xin Yi stated that the unserved and underserved categories from the B40 groups should be onboarded to financial service platforms that can help with their cashflow management, enable micro-savings or deposits, offer micro-insurance to safeguard their basic needs as well as offer basic financial products to tide them over their financial troubles.

Digital banking should be considered as a value contributor, increasing the involvement of MSMEs in the economy, as business and consumers in both retail and commercial sectors have pivoted towards e-commerce and digital payments, a development which has been accelerated by disruptions brought about by the pandemic.

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