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Thursday, July 18, 2024

Launch Partners

SME Bank opens Musharakah-based SME Recapitalization Fund

SME Bank has opened the RM600 million (US$127.01 million) SME Recapitalization Fund. The fund is part of the Semarak Niaga Program introduced in the 2022 Malaysian budget.  

The fund is sector-agnostic and is open to all SMEs affected by the COVID-19 pandemic where recapitalization is required due to a high leverage ratio.

Shariah compliant businesses can avail funding by issuing Islamic Redeemable Convertible Preference Shares (RCPS-i), which are quasi-equity instruments, to be purchased by the fund based on the Musharakah principle.

The fund features innovative provisions to allow for a terminal relationship based on the perpetual concept of Musharakah.

“For this program, we have adopted a structured approach wherein SME Bank via its subsidiary, Centre for Entrepreneur Development and Research, will from the onset provide all eligible potential investee companies and advisors which would assist the prospective company to develop its business plans and other assistance necessary to facilitate the application process.

“This would also be supported by the use of our internally developed AI [artificial intelligence] system, Enterprise Life Cycle Scoring Assessment, which provides a diagnosis of the business gaps and prescribes solutions,” Dr Aria Putera Ismail, the group president and CEO of SMB Bank, told ISFI.

The RCPS-i instrument offers an expected profit rate of 6% per annum while the specific profit-sharing ratio between the SME and the fund and the profit-sharing ratio will be determined on a case-by-case basis.

While the profit-sharing ratio varies, the indicative profit rate for the RCPS-i would be 6% annually subject to the availability of profit to be declared at the absolute discretion of the board of the respective SMEs, Dr Aria shared.

As the fund offers equity-based financing, a redemption of the RCPS-i needs to take place to terminate the relationship between the SME and the fund. The agreement also features a put option for the subscriber of the share, which is the fund, to sell the shares of the SME with the price determined based on a pre-agreed formula.

Successful applicants would be provided with training and business coaching over the five-year investment period.

SME Bank has allocated RM200 million (US$42.33 million) to the fund as the implementing agency. TERAJU and Bank Simpanan Nasional have also allocated RM300 million (US$63.5 million) and RM100 million (US$21.17 million) to the fund respectively.

The Ministry of Entrepreneur and Cooperatives Development has also provided RM4 million (US$846,740) to the fund to enable eligible entrepreneurs to participate in the Malaysia Equity Program, which is also a requirement to apply for the fund. KUSKOP is targeting up to 650 companies to benefit from the Malaysia Equity Program.

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