This article first appeared in The Edge Malaysia Weekly on May 25, 2020 - May 31, 2020

IN mid-April, a co-founder and partner of a services outfit had to jump through hoops to put in his company’s application for funding under the government’s RM5 billion Special Relief Facility (SRF). The loan facility is for small and medium-sized enterprises hit by the Covid-19 pandemic and the consequent imposition of a Movement Control Order (MCO).

Because the MCO was in force, he had to go to the police station in his neighbourhood to obtain approval to travel to the city, where his office is located, as he needed his company letterhead, stamps and other requirements for the application. However, he was informed that he would have to get approval from city police as it was under their jurisdiction.

To cut a long story short, about a fortnight after he put in the application, his bankers informed him that the SRF was already fully utilised because of the overwhelming demand.

Last week, Bank Negara Malaysia announced an additional RM5 billion allocation for the SRF, effectively doubling the facility to RM10 billion.

But SMEs that intend to submit their applications after the MCO ends on June 9 may be disappointed to find out that the additional RM5 billion has been earmarked for the 20,000 applications approved up till May 4.

The SME Association of Malaysia is of the view that with tens of thousands of businesses so badly hit by the pandemic and the MCO, the amount needs to be increased fivefold.

That may appear to be a lot, but even Bank Negara Malaysia has acknowledged that “overwhelming” demand had resulted in the initial RM5 billion being taken up in just five weeks after the government announced the stimulus package at end-March. The central bank said the RM5 billion had benefitted 9,000 SMEs and preserved more than 200,000 jobs.

The average amount received by each applicant appears to be RM555,555 even though the limit allowed is RM1 million.

Apart from the SRF’s low interest rate of 3.5%, participating financial institutions (PFIs) can obtain up to 80% coverage of the credit facilities from state-owned credit guarantee corporation SJPP. The PFIs bear the balance of the risk.

To put things into perspective, the 9,000 SMEs make up just one-tenth of the more than 900,000 SMEs in the country. Even if the amounts lent had been halved and benefitted twice the number of recipients, it would still have left many SMEs in the lurch.

SME Association of Malaysia president Datuk Michael Kang says a third of the country’s SMEs, or some 300,000, qualify for the facility, compared with the 20,000 applications that have been approved so far.

“We hope that the government can increase the allocation for the SRF. We suggested an allocation of about RM50 billion, which would be more effective in helping the SMEs and kick-starting the economy again,” he tells The Edge.

One of the participating PFIs, CIMB Group, saw such a surge in the volume of applications for the initial allocation that it had to increase its resources.

“The volume of applications was twice the normal demand we experience and we are working towards completing all the applications,” the bank says in response to questions from The Edge.

Some SMEs found the application process to be rather challenging.

The CEO of an SME in the hospitality sector says some of the difficulties applicants face include banks prioritising existing customers and borrowers over other applicants.

Moreover, much of the process is manual and slow. But his company’s efforts paid off as its application was eventually approved.

A spokesperson for another SME said it applied for the SRF at different banks simultaneously to increase the chances of getting approved. Although it is a hassle, the financial assistance helps to lighten the burden faced by SMEs during this challenging time, he says.

Others, such as myBurgerLab co-founder Chin Ren Yi, had an easier time. He says the process was smooth but attributes it, in part, to having a solid relationship with his bank.

“We applied 1½weeks before the MCO came into force. It wasn’t too difficult for us as we have a good relationship with our banker. Our application was approved, although there was a bit of a roadblock in that we couldn’t physically sign the documents during the MCO period,” he recalls.

Chin adds that he told his friends, who are also business owners, to apply for the facility early as he found that to be very helpful.

The co-founder of the services outfit says some funding would be helpful to tide companies over. “We have work to do but don’t know if clients can pay us. But at the same time, we have a large staff and rental outlay.

“Additional funds can help us bridge the gap until we are paid … because of the MCO payment terms have been stretched by a few months. It is a working capital issue,” he says, adding that while the SRF loans also have to be repaid, they are at more manageable rates.

He is keeping his fingers crossed that his company can access the additional RM5 billion allocated to the SRF.

Realistically, the chances look slim. The Petrol Dealers Association of Malaysia, which represents more than 2,000 petrol dealers, says the SRF has not helped very much thus far. Association president Datuk Khairul Annuar Abdul Aziz told a local daily that only 38 dealers had benefitted from the facility, 171 had their applications rejected, and 250 were awaiting approval.

Kang says the SME Association of Malaysia has been in touch with the relevant authorities, including the Ministry of Finance, Bank Negara and Economic Planning Unit, on the proposal for an even higher allocation.

But he also understands that commercial banks cannot be the only parties disbursing the relief as they have key performance indicators to meet and are answerable to their shareholders.

“Commercial banks are not charity organisations. What we have discussed and proposed is for the government to set up a special purpose vehicle which would help the industry and disburse these funds,” he says.

The proposal will be tabled to the Economic Action Council next week and, if approved, may be included in the government’s upcoming economic recovery and development plan, he adds.

It should be noted that many SMEs have not had sufficient time to apply for the funds, given that the MCO was only partially relaxed on May 4. At the same time, retrenchments and downsizing at struggling companies have bumped up the unemployment rate in the country to 3.9% as at end-March, with the number of jobless rising 17% year on year to 610,500.

The SRF was first announced on Feb 28 by then interim prime minister Tun Dr Mahathir Mohamad, with an initial allocation of RM2 billion in the form of working capital for SMEs to be provided by Bank Negara.

A month later, Prime Minister Tan Sri Muhyiddin Yassin announced an increase of RM3 billion for the facility, bringing the total to RM5 billion, as well as with a reduction in the interest rate from 3.75% to 3.5%.

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