Improved Credit Ratings for Better Access to Financing

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The SME Credit Bureau (SMECB) which was initiated by Bank Negara, was set up in 2008 via a strategic alliance between Credit Guarantee Corp Malaysia Bhd (CGC), Dun & Bradstreet Malaysia Sdn Bhd and the Association of Banks in Malaysia. SMI/SME Business Directory speaks to Alex Lim, CEO of the SME Credit Bureau for an insight into how SMECB benefits Malaysian SMEs.

Can you tell us a little on how SMECB came about?
The SME Credit Bureau (SMECB) began as a project by Bank Negara Malaysia (BNM) under CGC. The idea was to have a centralised source of reliable credit information which financial institutions, SMEs and other credit grantors can access for credit evaluation purposes.  SMEs can also use this platform to build, maintain and enhance their credit standings to gain greater access to financing. The credit bureau was incorporated on June 3, 2008, while our official operations began from 1st July 2008.

SMECB Information and Credibility
SMECB’s focus is solely on SMEs, we do not collate information on consumers or large corporations.

We collect data from BNM’s Central Credit Reference Information System (CCRIS), SSM (Suruhanjaya Syarikat Malaysia/Companies Commission of Malaysia) as well as other lenders i.e. other suppliers to SMEs. All these 3 sources contribute to our central database.

CCRIS comprises information submitted by all financial institutions on a monthly basis.  The Credit Bureau has a direct system to system link with CCRIS, similarly with SSM. This is to protect the credibility of our information by minimising human intervention, thereby reducing the chances of mistakes due to human error.

Suppliers of SMEs are also encouraged to submit data to our database. This includes licensed money lenders, telcos, utility companies etc. In return they too can extract data from our database. They normally need this information to check on new or potential customers whereby they get access to information on the credit payment behaviour of potential customers over the last 12 months. With this incentive they are more willing to provide data on companies they deal with. The manner in which SMEs pay their suppliers is referred to as ‘Trade Data’ – i.e. details like do they pay on time, are they late in payments, etc.

Having more entities supplying data enriches the system in SMECB. And it is all on a ‘win win’ situation basis, the more data you input, the more information you have access to. Right now the bigger SMEs and those who are more aware of the importance of credible information are more receptive to the whole idea. They understand the concept of how they can benefit from having better credit rating, i.e. better chances of getting loans, better terms, interest rates etc.

Information Protection
All our information suppliers are protected as the data provided in our reports do not show who inputs the data. Only the type of credit facility or credit lines you have and the payment details. So the question of pinching clients etc does not arise as such information is just not there.

Malaysian Financial Database

Users also cannot use our information for database marketing. This is because we operate on the principle of reciprocity. If you want to extract data you must contribute data. And if you want to extract data you must have a reason for doing so and the person whose data you are extracting will be informed.

If there is any breach of this principle the consequences are: they will be expelled as a member and a report made to BNM. We can even sue them as provided by contract.

SMECB Membership
The membership rate for SMEs is only around RM300 per annum, at this current point in time. Our classification of SMEs is those with a turnover of RM25mil and below and registered as a Sdn. Bhd., sole proprietor or partnership.

Currently we have over 26500 SME members, and 38 FIs comprising commercial banks, Islamic banks and DFIs (development financial institutions).

Products and Services for SMEs
We have a variety of products designed specifically for SMEs. Some of our reports however, are only for FIs as it contains information from CCRIS, which is controlled under the Banking and Financial Institutions Act (BAFIA).

Self Enquiry Report
As members, the main benefit they get is access to an avenue for recourse. When they sign up as a member they can extract their self enquiry report and sit with our team for advice on how to improve their credit standing so as to enable easier and faster access to financing, i.e. to improve as a debtor in the lender’s eye.

The first self enquiry report extracted is free for members, but they will have to pay a minimal sum for subsequent reports (RM50 each at this point in time). Non members pay RM 100 for every self enquiry report they request.  Our Advisory services are free.

They also gain more visibility of their credit standing through this report. Previously if their loans were rejected they would not know why, FIs are under no obligation to tell them. Now through their self enquiry reports they will have an idea and they can do credit repair. Our advisory services can help with advice on what can be done to improve their credit standing and ratings.

Further they can also correct any mistakes they see in their reports, provided they have proof.

Business Review Report(BRR)

SMEs can also extract information on customers, for a really minimal cost. This is to check on new or potential customers before you give them credit. Let me give you an example. An IT distributor who holds a license may wish to appoint many dealers. However, before he appoints these dealers and extends them a credit line, he would want to check on the potential dealers, especially with regards to their payment behaviour. Our detailed reports provide useful information on a business’s Trade creditors/Business Partners and whether they pay them well. It also shows the business, financial information and ultimately the credit rating of the potential customer.

The investment of this report as compared to the potential loss he may incur makes it attractive. The Business Review Report can only be extracted by members.

Business Information Report (BIR)
BIR basically provides SSM data. The extra information we provide in this report is on the number of enquiries generated on the particular SME. This gives an indication perhaps that they are shopping around, approaching many banks or that they have been rejected often so they have to go to many banks.

Credit Monitoring Service (CMS)
We are launching a new product on Feb 1, 2010, the Credit Monitoring Service. When you subscribe to this service the Bureau will do monitoring on your behalf, all for the very minimal cost of RM50 per annum. We monitor your credit standing and track any changes, ranging from payment behaviour change, change in directors, change in address etc. You will be alerted on any change in your information via email. We may also send alerts via SMS at a later stage.

The need for this service arose from the increasing incidences of identity fraud. This is a growing concern among businesses, including SMEs. Many businesses have become victims of such fraud, where illegal activities have been carried out in their name without their knowledge. Example if you have never applied for a loan and suddenly there is a loan rejection registered in your report. By subscribing to CMS, you will be alerted on all activities. You can subscribe to this service even if you are not a member of the Bureau.

Methodology & Assessment of SME Credit Ratings

Our methodology to assess credit ratings is based on Default Probability Model, a statistical tool which calculates the likelihood that an SME will default within the next 12 months based on information obtained from a range of business information sources. The Model was developed specifically for the Malaysian SME environment. Information is tracked over a period of 12 months so the predictability of our credit rating is good.

In coming up with the rating we take into account around 180 factors, all with different weightage. The main criteria you would want to look out for, which affect your rating, include Past Default; Historical Account conduct; Present Account Conduct; and Commercial Trade payments.

SMEs can use this tool to assess their customers, while to take care of themselves they can look into what steps need to be taken to improve their own Probability of Default (PD).

How SMECB assists SMEs
The main area in which we assist SMEs is by providing them an avenue for recourse and ensure only accurate information is reflected in their credit reports.

Let me explain further on this. Previously if I were to find out that someone is stealing my information or my identity, there was no way for me to verify this. Now all I have to do is come to SMECB and extract my self enquiry report. The report will show me all my payment behaviour details for the last 12 months. So I can track if there is any information which is falsified such as loans taken which were not initiated by me etc.

Further if there are mistakes in my information, such as loan repayments not updated and such which affect my credit rating, I can have it corrected, provided of course that I can supply proof.

Our reports are better than others because the information we provide covers a wider range and can be verified. This is because we source our information from trusted sources and so the reports we generate are reliable, in terms of source, methodology, transmission etc. Hence decisions made based on our reports are more likely to be based on a more true and comprehensive view of facts.

SMEs can also benefit from our free client advisory services. This is where we sit down with the SMEs and go through their strengths and weaknesses as shown in their self enquiry report. We will advise them on how they can capitalise on their strengths and how to improve on their weaknesses and generally on how they can improve their credit ratings.

Our goal is to create good credit culture and good payment behaviour which will eventually lead to better access to financing.

Creating awareness
Right now market awareness about SMECB and the services we provide is quite low, especially among SMEs. We are working towards changing this in a number of ways.

We work with all the Chambers of Commerce i.e. Malay, Chinese and Indian Chambers of Commerce, Associations, BNM, SME Corp, FIs and different agencies. We also share information through the media and engage a great deal in public speaking at various platforms– seminars, events etc. We are also organising road trips to talk to SMEs. We hope to reach a wider audience also through this directory.

Contacting SMECB
You can reach us via our website which is at www.SMECB.com or via email: info@smecb.com. Alternatively you can call us at 603- 78068080.  In future you will be able to have Live Chat via the Internet, with our team.