Micro, small and medium enterprises (MSMEs) across Malaysia are confronting the fact that readily available financial aid and incentives may not be enough to weather the prolonged economic impact of the COVID-19 pandemic. Among those hardest hit are social enterprises, the not-for-profit organisations that proactively create positive social or environmental impact in a way that is financially sustainable.

With the emergence of digital financing platforms such as peer-to-peer (P2P) financing, social enterprises are now able to get quicker and wider access to financing, especially in helping them mitigate current challenges brought on by the pandemic.

Challenges for social enterprises

Operating in the social-economic nexus, social enterprises use the power of the marketplace to solve the most pressing societal problems. These businesses exist primarily to benefit the public and the community, rather than their shareholders and owners. Social enterprises are commercially viable businesses with a purpose of generating social impact.

However, like many other MSMEs, social enterprises are not spared the impact of the pandemic. In a survey conducted last year among MSME owners and social enterprises of various industries, almost half of the respondents noted that they will only be able to survive for between three and six months during the Movement Control Order (MCO) period, with a majority highlighting some sort of financial assistance to help their businesses cope. The MCO may have been eased since late last year, but the outlook remains uncertain, particularly with the newly enforced MCO 2.0.

As part of its efforts to financially empower this underserved segment of SMEs, Funding Societies, the leading SME digital financing platform in Southeast Asia, has been providing social enterprise-focused financing via the Malaysia Co-Investment Fund (MyCIF) social enterprise scheme. The government had announced, when tabling Budget 2020 back in October 2019, an additional RM10 million specifically assigned to be co-invested in P2P campaigns for social enterprises. This is aligned with the government's aspiration to leverage on the public-private partnerships and explore mechanisms to widen access to financing for social enterprises.

Wong Kah Meng, co-founder and chief executive officer of Funding Societies Malaysia, said, “Social enterprises often play a unique role in driving more equitable economic well-being given their focus. While they help build a more diverse and equitable economy through tackling socio-economic issues, they remain financially underserved. As a digitally-driven financing platform, we are better placed to serve the diverse range of MSMEs by leveraging on our lower operating cost structure and hence able to serve creditworthy MSMEs who may not be profitable for banks to serve.”

The story of Batik Boutique

Batik Boutique, a fair-trade social enterprise focused on providing skills training and economic opportunity for local artisans by promoting their products in the global marketplace, was also not spared the unprecedented effects of the COVID-19 pandemic.

Amy Blair, founder and chief executive officer of Batik Boutique, and a client of Funding Societies Malaysia, stressed on the challenges to maintain cash flow amid the pandemic: “Business financing is essential for us to grow and thrive in the new normal, as small businesses reach a point where profit margins are not enough to sustain business as usual. It is especially worse for us social entrepreneurs as we are constantly worrying about cash flows while simultaneously attending to real societal issues that impact the most vulnerable groups in society.”

Like many other businesses, securing financing in the current economic climate was not easy and, therefore, to maintain a steady cash flow, Amy had turned to Funding Societies. She remarked, “Funding Societies played a very instrumental role in our growth and survival throughout 2020. They believed in our quality, product and numbers and were willing to support us in a time when most people were not offering financing to retail or travel businesses.”

“More focus should be given towards nurturing and developing local social enterprises so they are given a fair opportunity as with other entrepreneurship endeavours to thrive. Batik Boutique is a great example of a social enterprise with a sustainable business model coupled with a heartening mission of taking our beloved Malaysian batik craft to a regional and global stage. We are glad and excited to be able to support them in their social entrepreneurship journey,” Wong concluded.

MyCIF Social Enterprise Scheme

As the first and largest P2P financing platform in Malaysia, Funding Societies has disbursed more than RM6 billion in working capital across the region. As part of its mission in supporting social enterprises, and in line with the government’s PENJANA economic recovery plan under the Social Enterprise Elevation (SEE) initiative, Funding Societies is offering a social enterprise financing programme specifically for these companies.

Through the MyCIF Social Enterprise scheme, social enterprises which have been successfully accredited by the Ministry of Entrepreneurship Development under their Social Enterprise Accreditation (SE.A) programme (all stages) stand to enjoy up to 50% waiver in financing cost for their business financing application with Funding Societies.

-- BERNAMA

Funding Societies Malaysia is the first and largest P2P financing platform in Malaysia. Registered with the Securities Commission, the P2P financing platform connects SMEs with investors through an online marketplace, thereby increasing access to financing for SMEs.