BRIEFING ON SME FINANCING BY SME SPECIAL UNIT BANK NEGARA MALAYSIA

1. BRIEFING ON SME FINANCINGBYSME SPECIAL UNITBANK NEGARA MALAYSIA

2. PRESENTATION AGENDAI - INITIATIVES TO ENHANCE ACCESS TO FINANCING BY SMALL AND MEDIUM ENTERPRISES (SMEs) II - SMALL DEBT RESOLUTION SCHEME

3. I - INITIATIVES TO ENHANCE ACCESS TO FINANCING BY SMEs

4. SME Special Funds • BNM established various funds for SMEs. The lending rates under the funds are lower than market rates (3.75%-5% p.a.). • Currently, 5 Special Funds with total allocation of RM6.85 billion are operational. • These funds are channeled through the following financial institutions (FIs): - Commercial banks, finance companies, Islamic banks, development financial institutions and ERF Sdn. Bhd.

5. SME Special Funds Objectives: • To ensure that the specific economic sectors get access to financing at reasonable cost; and • To increase the productive capacity of the specific economic sectors

6. SME Special Funds Loan Processing • Financing is granted in the form of loan, not grant. • FIs bear the credit risk. • Normal credit assessment of the FIs is based on applicant’s risk profile. • Main criterion is viability of business / project. • Other factors. (not exhaustive) - Applicant’s character, repayment capability, capital commitment, business condition, etc.

7. SME Special Funds

8. SME Special Funds

9. Status of SME Special Fundsas at 30 June 2004 5 467

10. Credit Enhancement • Credit Guarantee Corporation (CGC) provides guarantee for SMEs with little or no collateral. • Borrowers are subjected to loan agreement • With the scheduled repayment by borrowers, it will enable the Government to assist other eligible borrowers

11. Client Charter of FIs • FIs are required to display their client charters on the SME loans. The client charters include: • Documents and information required from SMEs; • Eligibility criteria; and • Loan processing time. Generally, the processing time for loan application is 30 days from the date of complete submission. • FIs are also required to inform the applicants on reasons for rejection of loan applications.

12. Complaint Units at FIs • All FIs have established complaint units as an avenue for customers to lodge complaints: • FIs have to settle the complaints within two weeks. • Customers of FIs could also forward their complaints to: • SME Special Unit, BNM • Bumiputera Development Unit, ERF Sdn. Bhd.

13. SME Units at FIs • All FIs have established dedicated SME Units. • The roles and functions include: • Identifying SME financing needs; • Organizing training, courses and seminars; • Providing cash management services; and • Advisory services i.e. financial management.

14. SME Special Unit at BNM • Established on 20 May 2003, to assist viable SMEs by: • Providing information on the various sources of financing available to the SMEs; • Facilitating SMEs in their loan application process; • Addressing the difficulties faced by viable SMEs in securing financing; and • Providing advisory services on other SMEs’ financial requirements.

15. II - SMALL DEBT RESOLUTION SCHEME (SDRS)

16. Scheme Objective To provide assistance to viable SMEs that are constrained by NPLs through: • Facilitation of loan restructuring; and • Provision of new financing (if necessary)

17. Eligibility Viable SMEs in all economic sectors: • ≥ 51% Malaysian owned companies; • Full-time employees 150; • Sales turnover RM25 million; • Aggregate NPLs of RM3 million ; • Only NPLs of business-related loans; and • On-going business.

18. Scheme Mechanism SDRC to undertake an independent assessment on the viability of businesses of SMEs whose applications for; • debt restructuring; or • debt restructuring together with new financing have been declined by the FIs.

19. Funding / Guarantee • RM800 million has been allocated. • Guarantee of up to 80% under the Flexi Guarantee Scheme by CGC.

20. Financing Features under RFSB • Amount : actual working capital or RM1.5m, whichever is lower • Interest rate : 5% p.a. • Tenure : maximum of 5 years • Purpose of loan : for working capital and business expansion • Disbursement : Through a non-checking account.

21. Financing Features under RFSB Control mechanism: • Disbursement closely monitored; • New loan shall rank in priority; and • A ‘Standstill Agreement’ is to be observed.

22. Application Procedures • Applicant must use standard SDRS application form; • The SDRS application form can be obtained from participating FIs, ERF Sdn. Bhd., the Secretariat or BNM website at www.bnm.gov.my ; and • Completed application form together with all required supporting documents should be submitted to the participating FI, ERF Sdn. Bhd. or the Secretariat.

23. Supporting Documents Company information Management information Financial information Security information Business operation information Other information

24. Roles & Responsibilities of the SDRC Secretariat SME Special Unit of BNM acts as the Secretariat to: • Accept applications; • Conduct lenders’ meetings; • Assess viability and recommend debt workout arrangements to SDRC; and • Track progress of all applications and debt workout.

25. Roles & Responsibilities of SDRC Independent assessment on rejected applications; Review & decide on debt workout recommendations.

26. Summary of Process Flow NPL Borrowers (Application Form) ERF / SME Special Unit Scenario 1 FI(s) will process the application Agree to restructureand/or new financing Notification of approval or rejection Implementation Secretariat Disagree to restructure Re-evaluation by the Secretariat SDRC Scenario 2 Reject Applicant and FI will be informed Approve Implementation

27. Conclusion • The Government has introduced various initiatives and promoted various financing schemes to assist the SMEs. However, to ensure success SMEs should also: • Enhance competitive edge, business viability and quality of product or services offered. • Implement effective strategies to enhance accessibility to technologies, innovation, technical expertise including finance and skills in business management.

28. THANK YOU

29. SME Special Unit at BNM Contact Numbers: • Telephone: • 26932330 / 26914570 / 26916539 / 26913764 / 26916971 / 26913486 • Facsimile: • 26916954 / 26986705

30. Questions & Answers

31. Credit Process • Main criterion is viability of business/ project. • Review 5 C’s of credit - Character - Cash Flow & Collateral* - Capital Commitment - Competitive Advantage - Condition

32. Collateral Support • CGC provides guarantee • Borrowers are subjected to loan agreement

33. Sample Restructuring REPAYMENT CAPACITY* Bank AAA BBB NPL 100K 200K 300K MI 2,500 4,500 7,000 P 1,000 2,000 3,000 I 1,500 2,500 4,000 Year 1 Year 3 Year 2 6,000 7,000 8,000 Next One Year Decision Consequence • Insist on 7,000 p.m • Insist on 6,000 p.m • Agree to 4,000 p.m • SME becomes a statistic • OK but no W. Capital for SME • ‘Win-Win’ with 2,000 W. Capital * Based on existing & projected business

34. Supporting Documents Company information - Business registration / Form 24, 49 and M&A - Company profile Management information - Photocopies of directors’ & owner’s I/C & profile - Management’s profile / organisation chart Financial information - Audited accounts for the last 3 years - Management account for the current year - Latest NPL statements - A copy of the letter of offer for all loans with FIs - Cashflow projection for 3 years

35. Supporting Documents Security information - Valuation report – for NPL secured by property - For new proposed security:- Landed property: - A copy of grant / title - Latest valuation report - Sale & purchase agreement Fixed deposit receipt Business operation information - List of major suppliers and credit limits, major clients and sales terms - List of on-going projects, completed projects & contracts - Letter of award/indent/invoice/payment voucher - List of machineries and equipments owned

36. Supporting Documents Other information Construction sector - Pusat Khidmat Kontraktor’s certificate / other registration - Letter of award for proposed project for financing - Project’s cashflow statement - Statement of project’s estimated profit / loss etc. Manufacturing sector - Production cycle flowchart - Factory’s details – own / rent / encumbered / etc. - Production’s details – type of products, production capacity per month, market etc.

37. Supporting Documents Supply sector - Details of products traded / distributed / supplied - Source of supplies, trading and financing method - Current order(s) requiring financing –provide purchase order / invoice / delivery order etc. Service sector - Details of service(s) provided - Particulars of labour - For professional services List of professional staff and qualification License / approval to provide services Other necessary documents to support your application

38. 1. SBF Integrated Business Centre S.B. Contact Person: Mr.Peter Fong 712, 7th Floor, Block A Kelana Square Jalan SS7/26, Kelana Jaya 47301 Petaling Jaya Tel: 03 - 78033688 H/P: 013 - 3314345 Fax: 03 - 78030399 e-mail: peterfong@sbf.biz website: www.sbf.biz 2. The Royal Mint Exchange S.B. Contact Person: En. Hanif 28th Floor, Putra Place 100, Jalan Putra 50350 Kuala Lumpur Tel: 03 - 40458299 Fax: 03 – 40451299 e-mail: hanif@rmex.com.my website: www.rmex.com.my 3. Mohd Noor & Associates Contact Person: Mohd Noor Lot 14-1A, 14th Floor Pertama Complex Jalan Tuanku Abdul Rahman 50100 Kuala Lumpur Tel: 03 – 26918200 or 03 – 26985619 Fax: 03 – 26985125 e-mail: mohdnoor@mohdnoor.com.my 4. Razalee & Co. Contact Person: Razalee Amin Tingkat 15 Menara Safuan No. 80 Jalan Ampang 50450 Kuala Lumpur Tel: 03 – 20267810 H/P: 012 - 2385071 Fax: 03 – 20266810 e-mail: racopa@po.jaring.my razalee@acct-online.com PANEL CONSULTANTS FOR SME LOAN APPLICATIONS