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PETALING JAYA: The Islamic capital market can be the catalyst to spur the growth potential of Malaysia’s halal economy particularly among micro, small and medium enterprises (MSMEs) via alternative funding platforms such as equity crowdfunding and peer-to-peer (P2P) financing framework.

With that in mind, the Securities Commission Malaysia (SC) unveiled its latest initiative in that area, the Shariah Screening Assessment Toolkit aimed at unlisted MSMEs.

SC chairman Datuk Syed Zaid Albar opined that the halal economy and the Islamic capital market are natural economic partners as there are key synergies and convergence between the two governed by a shared syariah principle.

“The integration between the two worlds supports the potential of a holistic halal economy that is both ethical and sustainable, and supported by end-to-end syariah compliance throughout its value chain,” he said in his keynote address for the inaugural SC-Halal Development Corp (HDC) Forum 2021 with the theme “Enabling Growth Through the Islamic Capital Market”today.

As the backbone of the domestic economy, contributing close to 40% of GDP, Syed Zaid pointed out MSMEs are the key driving force of the local halal economy. He stated that this segment bore the worst of the extremely challenging and difficult period brought on by the Covid-19 pandemic.

“Considering the critical role they play in our economy, we must spare no effort to ensure our MSMEs are able to pull themselves out of the current quagmire, to flourish again.”

The SC chairman said if this means providing suitable capital market solutions, the regulator must do so, as its timely support will make all the difference.

“Therefore, appropriate and effective measures must be put in place to support a comprehensive end-to-end syariah-compliant ecosystem for emerging businesses in the halal economy. This does not only mean halal products and services, but also syariah-compliance from a ‘business transaction’ perspective.”

With a strong collective effort, the SC believes MSMEs’ role in the halal economy can be taken to a new level.

Similarly, HDC chairman Datuk Mahmud Abbas believes the halal economy and the Islamic capital market are natural economic partners, which will support and create demand for each other by ensuring end-to-end syariah compliance.

He observed that the segment can benefit from capital raised through ECF and P2P platforms, and some halal companies have pursued such funding methods. However, the opportunities for these alternative funding methods to support halal business have yet to reach their true potential.

Despite the volatile environment last year, capital raised via ECF was more than 5.5 times that in the year before, and P2P financing saw a 1.2 times improvement. Currently, there are six platforms operators providing syariah-compliant offerings, successfully raising more than RM1.6 million through P2P financing.

“We expect this rising trend to continue with increased interest in syariah-compliant offerings from potential issuers, as well as investors,” Mahmud said, adding that the SC is committed towards facilitating a conducive funding ecosystem for the development of the halal economy.

“Because of this well-developed ecosystem, Malaysian MSMEs in the halal segment can expect to benefit from syariah-compliant funding options that meet their business needs.”

Moving forward, HDC said Malaysia’s halal economy is projected to grow to US$113.2 billion in 2030, and better funding access will certainly assist halal industry players to capitalise on opportunities for expansion.

“In the long term, market-based funding obligations will also provide MSMEs the necessary discipline to better manage their cash flows and finances,” said its chairman.

The SC Shariah Advisory Council’s deputy chairman, Dr Aznan Hasan, said the assessment toolkit will provide companies with a clear assessment tool as opposed to doing through a syariah advisory council. He also said the regulator has considered the circumstances and conditions of MSMEs in developing the toolkit to make it more practicable as it believes the assessment should not be done only from a listed entity’s point of view.

“MSMEs’ understanding of syariah compliance might be quite limited and they might not understand that their conventional financing might bar them from applying for Islamic ECF and P2P financing in the future,” said Aznan.

In the syariah assessment, the SC still retains the quantitative aspect but has done away with qualitative aspects.

The council deputy chairman stated it also has a different consideration in regard to financial ratios, with the P2P financing ratio at 33%.

“For ECF, we’ve considered MSMEs might have limited knowledge of Islamic capital market, we have given them a bit of leniency for the ratio, allowing them to have less than 49%. Our intention is simply to allow them to tap into the market,” he added.

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