THE Federation of Malaysian Manufacturers (FMM) has proposed that the banking sector benchmark themselves against their regional and international counterparts to ensure that their cost of borrowings is competitive.
This, in turn, would ensure that Malaysian companies were cost competitive when they compete globally, the FMM said in its memorandum to the Finance Ministry on the Budget Dialogue 2004 in Putrajaya yesterday.
FMM said the margins enjoyed by banks continued to be high given the difference between deposit rates and the base lending rate.
FMM also proposed alternative forms of collateral for small and medium-sized enterprises (SMEs) which could include one or a combination of the following:
·Confirmed sales proceeds,
·Factoring allowing SMEs to factor invoices at identified financial windows,
·Guarantees from purchasers,
·Second charge on property or assets,
·Feasibility studies by pre-agreed consultants or special unit, and
·Guarantees from directors or holding companies.
It suggested that as an incentive to financial institutions providing loans with alternative collateral, interest income from such loans be exempt from tax.
It also proposed that the various SME funds allocate RM500mil to financial institutions (FIs) at a cost of 1.5% which can be extended as credit to SMEs at 3%, with the FIs earning a margin of 1.5%.
FMM has proposed that the government, development financial institutions and FIs provide fixed, long-term interest rate loans for 20-30 year periods for the purchase of assets, factories and expansion of projects.
In addition, variable interest rates that increase over the loan repayment period consistent with the growth profile of the company would also ease the financial burden of SMEs. The average rate of interest over the life of the loan should not exceed 4%.
To bridge the funding requirements of SMEs, they should either be provided with seed capital or debt support on terms less demanding than financial institutions, particularly during the initial years.
There was also a need to standardise loan documents and business plans, FMM said.
Designing a template for loan documents and business plans would assist in lowering the cost of borrowing for SMEs and facilitate the refinancing of loans when financial market conditions, in particular interest rates, change.
Such templates could be designed jointly by Small and Medium Industries Development Corp in consultation with Bank Negara, Association of Banks and FMM.