This article first appeared in Forum, The Edge Malaysia Weekly on December 16, 2019 - December 22, 2019

Malaysian small and medium enterprises (SMEs) have great potential to grow to new heights with the availability of fintech. A 2017 World Bank report projected that Malaysia will see strong growth (12.5%) in the fintech industry until 2023. While financial institutions were the first to embrace it — with 66% of Malaysian banks aiming to transform their approach to being more digital-focused by 2020 — SMEs are beginning to get into the game.

Today, SMEs make up more than 35% of Malaysia’s gross domestic product. But despite their economic importance, SMEs face a lot of institutional challenges, which include a shortage of human resources, limited sources of funding and a lack of business opportunities. With the fintech revolution, however, SMEs can take their businesses to the next level.

The concept of fintech works to their advantage because it allows companies to step away from the need for a centralised server because everything can be accessed through cloud-based networks. Fintech can also empower communities by favouring the development of a reputation-based ownership of shared resources, promoting economic activity, trust and transparency.

Another component of fintech is blockchain technology, which is the merging of cloud-based networks and databases. Thanks to this technology, information can be stored and updated simultaneously on all computers connected to a particular network. The real innovation of blockchain technology is the validation of a new record in the shared database, which can be performed via a peer-to-peer process without the need of intermediaries to authenticate these changes.

That is just one of the many ways that fintech can assist with growing the reach of SMEs. There are many other aspects central to SMEs that can be influenced by fintech.

Through the nature of the technology, fintech promotes the development of a digital environment that supports SMEs as they can be part of a new ecosystem, which is to their benefit. Malaysia has provided multiple avenues for funding for SMEs in order to grow their business. Almost immediately, that is one area that is available to SMEs across the country.

Apart from government funding, as a result of this new technology, fintech can help SMEs that need an injection of funds. Through blockchain technology, SMEs can take their crowdfunding platform to the global stage to attract potential investors. In addition to public access online for people visiting the platform, the description of potential projects would be automatically shared with all SMEs and major institutional or traditional financial stakeholders such as banks and governmental organisations to ensure maximum visibility.

By offering the project information to other SMEs, it allows other companies in the country to invest, reducing the reliance on government authorities and giving other SMEs a platform to combine their resources.

Fintech also promotes the circular economy that is central to blockchain-based transactions. SMEs can collaborate with other companies to reduce wastage by promoting the continual use or the sharing of resources. This prevents the loss of earnings or opportunity costs when SMEs do not fully utilise their equipment.

From an operational point of view, fintech and blockchain technology help to ensure that all transfers and transactions are documented from the initial step to the last one, increasing transparency, visibility and traceability of operations. By shifting to a blockchain-backed supply chain, companies are able to reduce fraud and improve inventory management by reducing potential hidden costs. In relation to sales, fintech provides a collection of solutions to better know the clients (know-your-customer, or KYC) by improving the identification process and the customisation of services.

Some SMEs may think blockchain solutions are complex and too expensive for them. This perspective is based on the classic way of considering technology as a heavy investment. One aspect of the fintech revolution is to provide an ecosystem in which the pooling of computational resources and knowledge can offer affordable and customer-oriented solutions for all stakeholders, including SMEs.

SMEs can seek the different avenues available to them to learn more about fintech and blockchain. The Malaysia Digital Economy Corporation and the FinTech Association of Malaysia are two great platforms to work with to delve deeper into this area. Together with universities, these two organisations are striving to grow the reach of fintech within the SME sector.

Prof Dr Christophe Schinckus is the head of the School of Accounting and Finance at Taylor’s University and a keen proponent of fintech

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