Emphasising sustainability in its overall business operations, Bank Islam Malaysia Berhad (Bank Islam) constantly highlights environmental, social and governance (ESG) aspects when designing its banking products and other initiatives.
As proof of the Bank’s commitment to ensuring the creation of a positive and lasting impact on society, the economy and the environment through its SME Banking division, Bank Islam developed a new SME product, the SME Smart Eco Financing (ECO). This financing programme enables SMEs to finance their investments in green sustainability, whether as Producers or Users.
“ECO is designed to encourage investments in the green technology industry, whether for producing green products as a Producer or purchasing green technology for adoption as a User,” explained Rizal Yusof, the Director of SME Banking, Bank Islam.
“Producers may be able to use ECO as capital expenditure to produce green products, whereas the Users may apply it for utilising green technology. ECO is also available to finance working capital.
“The Producer, for example, is a company that produces solar panels. Yes, we can finance that. On the other hand, Users will be companies that purchase solar panels from the Producer,” he added.
Bank Islam sets some requirements for the application of ECO. For SMEs to apply for this financing, they must be:
• A Sdn Bhd or Private Limited Company, Sole Proprietorship/Partnership that falls within the SME definition outlined by SME Corporation Malaysia (SME Corp).
• The business must be in operation for at least two years.
• The company has been profitable for at least one (1) out of the last two (2) years.
“Users usually require less financing, so we allocate up to RM5 million per User. Meanwhile, green technologies are expensive and require huge capital, so we allocate up to RM15 million per Producer.”
Objectives of SME Smart Eco Financing
Whilst green initiatives might not be SMEs’ main priority at the moment as they focus on keeping afloat due to economic challenges, Rizal opined that these companies would eventually move into the ESG-compliant direction due to the demand from the industry. Therefore, Bank Islam’s objective in developing the product is to promote and facilitate SMEs’ adoption of green and sustainability practices.
“ECO enables companies to acquire or purchase assets listed under the MyHijau Directory and verified as green technology assets by the Malaysian Green Technology and Climate Change Corporation (MGTC),” said Rizal.
The financing also helps widen the coverage of green services to include solar leasing activity.
Benefits of SME Smart Eco Financing
Rizal highlighted that ECO would benefit SMEs that produce or adopt green technology for their business. The product enables SMEs to purchase business inventory, equipment or services relating to sustainable initiatives (for Producer) and sustainable practices (for User).
“Customers of ECO are eligible to benefit from Government Tax Relief, Incentives and Discount under the Green initiative. So they have Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) under the MGTC.
“Another one is the extension of Investment Tax Allowance (ITA) for the purchase of green technology assets and Income Tax Exemption (ITE) on the use of green technology services and systems under the Malaysian Investment Development Authority (MIDA).”
ECO also contributes to achieving the government’s target for Malaysia to be a net zero emission economy by 2050 on sustainable energy, including Renewable Energy (RE) and Energy Efficiency (EE). It supports the government’s initiative on green technology and the public tender programme for the Large Scale Solar Programme (LSSP), which allows companies from the private sector to build, own, and operate solar plants to generate RE in large capacities.
Great future for halal SMEs in 2023
Malaysia is ranked among the top halal export countries in the world, and the halal economy is one of the critical sectors of growth for the country.
When asked about the prospects of the halal industry and Islamic finance in 2023, Rizal was optimistic. He noted that official statistics indicated that halal exports climbed 19 per cent from RM30.5 billion in 2020 to RM36.3 billion in 2021, accounting for 2.9 per cent of Malaysia’s overall exports. Islamic finance in Malaysia can be considered mature and has great potential to support the development of the halal industry.
“That being said, future prospects will be aplenty. Budget 2023 had allocated RM92mil to develop the country’s halal industry – addressing the need for infrastructure development, promotion of halal products, compliance with halal certification and adapting to halal innovation, and many other incentives.
“It is imperative that halal SMEs seize the opportunities and benefits made available by agencies such as the Malaysia External Trade Development Corporation (MATRADE), MIDA, SME Corp and the Halal Development Corporation (HDC) for their business growth and expansion, locally or abroad.
“Bank Islam is proud to be a strategic partner to these agencies mentioned. As a full-fledged Islamic local bank and the first to be listed on the Main Market of Bursa Malaysia, we are mandated to support the growth of the halal economy in Malaysia.
“Our products, such as the Go Halal SME, SME Biz Grow, SME Exporter and SME Smart Eco, are all designed to support the growth of SMEs in the halal industry. We aim to strengthen our SME portfolio with Shariah-compliant financing products and services that meet the ever-evolving needs of halal SMEs.”