SME Bank is targeting to offer RM1.8 billion (US$422.47 million) in financing for ESG-compliant customers in 2023. The bank is also hopeful that the 2023 Malaysian budget, which is set to be retabled later this month, will include allocations for social enterprise development, Aria Putera Ismail, CEO and president of SME Bank Group, told ISFI.
“The bank is looking forward to the new budget to be announced in the retabling of the National Budget 2023 in February 2023 whereby our wish list includes funds to develop and strengthen social enterprises which are also in tandem with the Malaysia Social Entrepreneurship Blueprint 2030,” Aria shared.
Aria added that SME Bank, which is a development financial institution, is working closely with the government, regulators and other entities to offer incentives for SMEs to instill sustainability practices in their business operations including tax incentives and borrowing cost subsidies in addition to incentives for capacity-building and consultancy services.
The 2023 Malaysian budget was previously announced on the 7th October 2022, which included a notable push for sustainability initiatives. The budget, however, was not approved as the parliament was dissolved on the 10th October 2022 to make way for snap elections, which took place on the 19th November. The new unity government will debate a revised budget expected to be tabled on the 24th February.
The previously tabled budget included several allocations under SME Bank. As part of the government’s commitment to be carbon-neutral by 2050, the original budget allocated RM11 million (US$2.58 million) under the bank’s Sustainability Incentive Scheme and Juara Lestari Scheme.
Aria further shared that the bank is looking to introduce a number of social programs this year to support financial inclusion as part of its responsible banking pillar.
“In 2023, SME Bank is targeting to approve RM1.8 billion in financing to eligible SMEs that qualify as per our internal ESG screening,” Aria told ISFI.
Additionally, the bank previously announced that it will focus on promoting ESG adoption among MSMEs through more sustainability-linked offerings this year.
Highlighting the urgency of ESG adaptation, Aria related that with the push for ESG adoption by regulators, SMEs that do not comply with ESG standards will have difficulties accessing capital from financial institutions.
Moreover, participation in the international market will also prove challenging. “European countries are now starting to put an embargo on countries that are not ESG-compliant and are considering higher taxation or carbon credits when trading,” Aria warned.
The international trade constraints suggest that SMEs will not only lose market share if they do not adopt ESG practices now, they will also face difficulties exporting to regions with higher ESG scrutiny.