First Credit Monitoring Services for SMEs

When I read the news, I was delighted to see our friend Alex posing for a picture in The Star. I met him at a Malaysia SME event and then another one during the SMI Association event. I thought this is cool to share as XeerSoft has many customers which are SMEs and therefore, it will be helpful to know.

Saturday January 16, 2010

SME Credit Bureau to launch country’s first Credit Monitoring Services for SMEs

By DALJIT DHESI

THE inception of the SME Credit Bureau Sdn Bhd in 2008 has given hope to credible small and medium enterprises (SMEs) seeking funds to expand their operations. At the same time, it has spared financial institutions the burden of screening trustworthy and reliable ones for financing.

The current internal credit rating system used by banks to assess SMEs takes only a micro view in the sense that it rates only SME customers without having a wider picture or other pertinent information on the SME market.

This is where the Bureau steps in. It offers SME credit risk rating, business review and business information reports to banks and SMEs.

The credit risk rating, according to chief executive officer Alex Lim, is carried out after getting the relevant information data of SMEs and later conducting credit rating specifically for each SME to facilitate financing. Information is extracted, among others, from the Companies Commission of Malaysia and Bank Negara.

“By using the default probability model we can gauge the likelihood of an SME’s ability to repay over the next 12 months. This is premised on their payment behaviour over the past 12 months.

(for picture - please browse to the site - link provided below)
Alex Lim ... ‘An effective CMS system will ensure that SMEs growth will not be hindered or affected by identity theft and fraud.’

“If they have been successful in making payments over the last 12 months then the probability of defaulting in payment is low and vice versa,” he tells StarBizWeek.

Another scale used in credit rating, he adds, is the percentile ranking which shows SMEs ability to pay relative to the entire SME universe. The higher the percentile ranking, the higher the SME’s ability to pay up the loan, he notes.

Having credible information and reliable data cuts down the bank’s processing time for applications of loans by average between 20% and 30%.

Having tied-up with US-based Dun & Bradstreet, he says, has enable the Bureau to localise and tap the expertise of its partner in credit ratings as the former has years of experience in the specialisation of solutions for credit bureaus worldwide. Dun & Bradstreet’s methodology has been used by credit bureau’s globally for more than two decades.

The Bureau at present has about 26,500 SME members fromover 500,000 SMEs in the country, and 38 member financial institutions. These include commercial banks, development financial institutions and Islamic banks.

SMEs wanting to be members must sign a contract with the Bureau. Based on the principal of reciprocity, they can only then access information if they provide authentic data to the Bureau.

Lim stresses that the Bureau does not provide any recommendations to extend or deny credit to SMEs, but rather aid them in building a track record and financial standing for facilitating funding.

He points out that the Bureau has spent millions to ensure that the data retrieved and stored is safe and not open to tampering or abuse. He says it will make significant investment over time in its bid to become a one-stop centre for credit information for financial institutions and SMEs.

To beef up its credit ratings and to curb fraud, the Bureau will launch on Feb 1 Malaysia’s first Credit Monitoring Services (CMS) for SMEs. Early this month, it introduced a similar service for financial institutions. The CMS system monitors key changes in banking and business information, trade credit information as well as credit ratings of SMEs.

These changes in data are then sent out as email alerts to SMEs who subscribe to the service.

By alerting them, Lim says the CMS can prevent fraud and identity theft as well as any discrepancies or changes to their credit information.

Identity theft occurs, for example, if an SME’s identity is used illegally to apply for credit, and changes to credit information occur when there is new loan applications, enquiries by financial institutions, and other credit guarantors and utilities related updates.

Apart from receiving email alerts upon changes of their information in the Bureau’s database, SMEs may also purchase the self enquiry report separately if more detailed information is required, he noted. A nominal fee of RM50 per year will be imposed on SMEs that wish to subscribe for the service.

“An effective CMS system will ensure that SMEs growth will not be hindered or affected by identity theft and fraud. It also ensures their business registry and credit information are kept updated and accurate to ensure their applications for financing will not be jeopardised by inaccurate or out dated credit information,” Lim says, adding that CMS will promote good credit culture among SMEs, which will ultimately lead to more credit facilities in less time.

Source: The Star Business