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@ Halal | September-October . 2021

BY FATIHAH MANAF

Many initiatives were introduced to facilitate the growth of this crucial segment , including establishing alternative fundraising avenues in the capital market for the MSMEs to seek market-based financing to support their expansion plan .

As a global leader in the Islamic economy , Malaysia ’ s MSMEs seeking Shariah-compliant fundraising are also expected to benefit from these alternative fundraising avenues .

The growth of Malaysia ’ s halal market signals the potential for these MSMEs ’ halal players to tap into the equity crowdfunding ( ECF ) and peer-to-peer ( P2P ) financing platforms in the Islamic capital market ( ICM ) as it is well-placed to support this development .

To provide the platform for the halal economy development discussion , the Securities Commission Malaysia ( SC ) and Halal Development Corporation ( HDC ) organised the inaugural SC-HDC Forum 2021 , themed “ Enabling Growth through the Islamic Capital Market ”.

In his welcome remarks , Dato ’ Mahmud Abbas , Chairman of HDC , urged halal players to take this opportunity to enhance their value proposition to meet the increased demand for Halal-certified products and services .

He stated : “ HDC is fully committed to providing a holistic ecosystem to support Shariah-compliant market-based fundraising for our pool of halal companies representing the SMEs , as we continue to embrace the opportunities and challenges albeit the Covid- 19 pandemic .”

Datuk Syed Zaid Albar , the SC Executive Chairman , introduced SC ’ s latest initiative during his keynote address . It is a guide to screen the shariah status of the MSMEs in the unlisted market , namely the Shariah Screening Assessment Toolkit for the Unlisted Micro , Small and Medium Enterprises (“ Toolkit ”).

“ We anticipate the introduction of the toolkit will encourage more shariah-compliant offerings on alternative market-based fundraising platforms ,” said Syed .

Supported by Capital Markets Malaysia ( CMM ), the two-day virtual event aimed to facilitate conversations and knowledge sharing surrounding the development of the halal economy through the ICM and promote the participation and growth of industry players within Malaysia ’ s halal ecosystem .

The Day One forum had two discussions and a presentation featuring relevant stakeholders within the halal industry to share

Dato ’ Mahmud Abbas

Datuk Syed Zaid Albar

knowledge , insights and solutions covering a broad range of topics on fundraising and scalability of MSMEs .

Shariah screening for unlisted MSMEs

Asso Prof Dr Aznan Hasan , the Deputy Chairman at Shariah Advisory Council of SC , acknowledged the importance of the Toolkit for businesses , especially with the total of RM1.34 billion of funds raised through the ECF and P2P platforms in 2020 .

He said : “ The number is going to grow . So , that ’ s where this Toolkit is essential . We want them to tap into the Islamic capital market . But we need to provide them with something for them to assess themselves .”

He pointed out business owners did not have to go to the Shariah Advisory Council every time and use the Toolkit to assess their shariah compliance .

“ We need to provide them with a clear assessment tool for them to be able to assess themselves and to see whether they are capable of being classified as shariah-compliant entities for fundraising activities ,” said Aznan , adding he was happy with this initiative as it makes shariah-compliance more practicable for MSMEs .

“ The Toolkit is so timely . Why is it timely ? I reiterate the Halal Industry Blueprint that the stakeholders and we are trying to strengthen . Our implementation of the Halal Industry Blueprint has seven strategic thrusts and at each strategic thrust is where the shariahcompliance Toolkit comes into play ,” said Adly Mohamed , the Chief Commercial Officer of HDC .

He said that HDC had recently completed the Halal Sectoral Roadmap .

“ With this Halal Sectoral Roadmap and the Toolkit , I believe we can surely create more excitement for the halal industry sectors , especially the new sectors of pharmaceuticals and vaccines ,” he added .

Sam Shafie , the Co-Founder and Chief Executive Officer of pitchIN , agreed players were not doing a great job regarding shariahcompliant ECF . He also pointed out ECF was a viable way for companies to raise funding instead of being seen as an alternative avenue .

Sam argued : “ We look at numbers RM1.5 billion , that ’ s a lot . But we all also need to acknowledge that the numbers in terms of shariah compliance are small . So , this Toolkit is a positive step .

“ It will make life easier for us as a platform to actually guide companies and also investors .”

Market-based funding options for Halal businesses

Wan Dazriq , the Chief Executive Officer of ETHIS Malaysia , shared at least three aspects that investors look for in a company .

He said : “ It ’ s the potential of growth , revenue or dividends and the impact on society or environment .”

He said the environmental , social and governance ( ESG ) credentials would be a good selling point for a company to help to attract investors .

Jamaludin Bujang , the Managing Director of Gobi Partners , then argued that it was different for venture capitals ( VCs ).

“ VC operates in a precise mandate because that mandate is driven by the investors that invest money into us . We call this LPs ( limited partnership ),” said Jamaludin .

“ When they give us money , they provide a particular mandate . It will be for specific sectors that they think they are good at or certain industries that they prefer to have exposure to because they are familiar with it . Or , they identify these are the sectors that can grow faster compared to the rest .

“ When it comes to VCs , the rejection rate is very high . I would say 99 per cent of applications get rejected . So , that ’ s why it ’ s challenging to raise money from VCs .”

Jamaludin suggested ECF and microfinancing would be the best options for early-stage companies to raise funding . In addition , he also highlighted VCs were responsible for overseeing and guiding companies so they would have an added value after investments were made .

Adding on to the discussion , Tunku Danny Nasaifuddin Mudzaffar , the Founder and Chief Executive Officer of microLEAP , stated : “ What investors are looking for is yield .”

Tunku Danny said the average yield for a P2P financial platform was anywhere between 12-18 per cent per annum , which is much higher than fixed deposit rates , ASB and EPF .

He added impact as another aspect that investors were looking for at microLEAP and that borrowers were not the ones who drove the growth of shariah-compliant funding at the platform . Instead , investors were hungry for shariah-compliant assets .

He said being an alternative funding avenue , ECF or P2P would never replace the bank , but the application for financing through ECF or P2P took a shorter time to be approved .

“ ECF and P2P are not as strict as banks . But we still do our due diligence . We make sure the company has the right revenue and profit to pay back the financing . So , we take care of all MSMEs that have fallen through the net of traditional banking ,” said the microLEAP founder .

In between the discussions , a case study was presented by Shahril Ibrahim , the Managing Partner of The Hive Southeast Asia , titled “ Building an Enterprise with the Potential for Scale and High Growth Prospects : Private Markets Focus ”.

The presentation focused on The Hive as venture capital and some aspects that it was looking for in start-ups , such as scalability , traction , passionate entrepreneurs , good unit economics , and a solution for a real problem .

The Day One forum was moderated by Sharifatul Hanizah Said Ali , the Executive Director of Islamic Capital Market Development of SC and Zalina Shamsudin , the General Manager of Capital Markets Malaysia .

The forum can be accessed on SC-HDC Forum 2021 website .