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The Malaysian Reserve

30 April 2013

SJPP YES TO RM10.2B FINANCIAL GUARANTEES

Initial RM5B limit fully taken up only 5 months after its introduction

SYARIKAT Jaminan Pembiayaan Perniagaan (SJPP) has approved a total RM10.17 billion worth of guarantees under its industry restructuring financing guarantee scheme (IRFGS) and working capital guarantee scheme (WCGS) as at March 31, 2013.

Prokhas Sdn Bhd acting MD Datuk Kamal Mohd Ali said the WCGS scheme received an overwhelming response with the initial RM5 billion limit being fully taken up on Sept 7, 2009, only five months after it was introduced.

Kamal says that with a govt guarantee of up to 70% from the total amount of loan, this has encouraged financial institutions to approve the loans without insisting on collateral from borrowers

Prokhas is a wholly owned unit of the Minister of Finance Inc.

"A lot of Bumiputera companies have difficulties obtaining financing facilities due to failure to fulfill certain requirements set up by the financial institutions but eventually succeeded in saving their business operations with the help of the loan guarantee from WCGS administered by SJPP.

"With a government guarantee of up to 70% from the total amount of loan, this has encouraged financial institutions to approve the loans without insisting on collateral from borrowers," he told The Malaysian Reserve in an email interview, recently.

SJPP is a company wholly owned by the Minister of Finance Inc. Its role is to manage and administer two guarantee schemes, the IRFGS and WCGS.

Both schemes were introduced by SJPP in the financial market on April 16, 2009, a month after it was announced in the Dewan Rakyat.

Forty-four financial institutions participated in the schemes. The government allocated RM5 billion to each scheme under the Second Stimulus Package totalling RM60 billion on March 10, 2009.

After an overwhelming response to WCGS, the government then allocated an additional RM2 billion from IRFGS to the WCGS scheme, bringing the total limit to the WCGS scheme to RM7 billion. It was fully exhausted within one month and was closed on Oct 26, 2009. The IRFGS scheme was closed on Dec 31, 2010, with RM1.05 billion approval against the scheme fund of RM3 billion.

Under the 10th Malaysia Plan (10MP), the government then allocated another RM3 billion to the WCGS scheme in order to enhance access to financing for small and medium enterprise companies. The 10MP WCGS limit of RM3 billion allocation is divided between Bumiputera companies and non-Bumiputera companies of which the allocation is RM1.5 billion each.

"The schemes under SJPP have not only saved the operations of companies from going out of business, but has also enabled them to thrive through increase of capacity, capital and competitiveness," Kamal said.

Among the companies which have benefitted from the guarantee scheme are Smart Travel and Tours Sdn Bhd (STT) and Madura Industries Sdn Bhd (MISB).

STT MD Abdullah Faroff Hussain said that when the company was in the growing stage, they had some difficulty in seeking working capital and applied for financing through the WCGS scheme from the financial institution in 2011.

"As a travel agency, STT's type of service industry requires high cashflow as we have to deal with a lot of credit transactions especially in purchasing flight tickets and hotel bookings," Abdullah said.

SJPP granted them RM1 million financial guarantee for a period of five years after STT managed to convince the participating banks and SJPP with a good business model and viability.

The company which started its operations in 2001 and initially recorded sales of RM5 million per annum has now managed to raise its sales to RM25 million per annum.

MISB MD Zakaria Jusoh said the financial guarantee by the government through WCGS is a helpful aid and valuable show of faith by the government towards the ability of small companies to expand the company's operations.

"Most small companies like us have a higher chance of closing operations if we are not given the opportunity and trust to carry out business operations, as financial institutions are strict in approving loans especially on collateral matters," he said.

SJPP approved MISB guarantee loan of RM1 million in 2011. With the support of the financial facility, the company was able to expand its business to Maldives, Indonesia, Vietnam and Singapore and is at the stage of exporting their products to China and Australia. Their exports contributed to 20% of sales for the company.