Islamic banks reluctant to release loans to Indian SMEs

INDIAN small-and-medium sized entrepreneurs (SMEs) are having a tough time to tap into a RM130 million an Islamic financing facility announced by the government nine months ago. This is mainly due to the perceived reluctance of Islamic banks granting such loans — probably due to lack of a guarantee from the authorities and perceived weak creditworthiness of the applicants.

Source from (The Malay Mail): http://www.mmail.com.my/story/islamic-banks-reluctant-release-loans-indian-smes-51850
Published: March 31, 2013

As of Jan 23, 77 out of 81 applicants for the syariahcompliant SME financing scheme — routed through the Special Secretariat for Empowerment of Indian Entrepreneurs (Seed) — were rejected. Only four entrepreneurs received financing worth RM4.4 million.

Seed director Dr A.T. Kumararajah said the 13 Islamic banks entrusted to disburse the special Indian business facilitation fund were “not interested” to lend the money to the community as the financial institution were only looking at the applicants from a “business case” view.

“It’s not a special fund for the Indians. The banks are not keen to lend money to Indian entrepreneurs as the money is solely under their discretion. There is no government guarantee to that money.”

Aside from the Islamic banks, Malaysian Industrial Development Finance is to provide RM10 million in SME soft loans, RM5 million under the enrichment and enhancement program for business start-ups and micro-enterprises and RM30 million through the microfinance facility provider under the Tekun Nasional scheme.

Stressing there was no “special treatment” for business proposals which passes through Seed, Kumararajah said the only incentive in the SSFS scheme was the 2% interest rebate given to the participating banks for their cost of financing.

“We are looking for a redesigned scheme that would enable the Indian businesses being evaluated on a different basis than a standard evaluation process.

“We understand a lot more needs to be restructured for the Indian business community to get preferential access, in terms of funding and that is what we are doing now.”

Seed also wants to work with Bank Negara Malaysia to monitor from “root to tip” the performance of the banks and both the approved and rejected applications by the joint cooperation proposed under the SSFS scheme.