Dealing with the day after: Severe floods wreak havoc on communities by upending business activities, such was the experience of this restaurant in Kota Tinggi, Johor, back in March 2023.
Govt urged to mitigate losses, provide assistance and streamline claims
PETALING JAYA: A long-term strategy to mitigate flood risks is needed to protect small and medium enterprises (SMEs) in light of the frequent occurrence of floods due to climate change.
The SME Association of Malaysia emphasised on the need for a focused response from the government, particularly after the severe floods in Sri Muda and Klang, Selangor caused massive losses to businesses in 2021.
President of the SME Association of Malaysia Ding Hong Sing highlighted that 60% of factories in the country are located in the state and stressed the importance of improving water irrigation systems to protect SMEs from damages caused by floods.
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“Manufacturing plants usually have insurance, but the process is too lengthy for SMEs making claims. Severe floods are unavoidable, and when floodwaters submerge factory machinery, it is especially damaging for export-oriented companies and they risk losing customers if operations are halted,” he said.
The severe floods in the Klang Valley in 2021 prompted the government to approve low-interest loans of 2% on RM100,000 to help distressed SMEs. However, the government should offer streamlined loans to SMEs, especially those affected by floods, according to Ding.
While the government had offered low-interest loans to alleviate the impact of the floods, Ding stressed on the need for simplified loan processes for affected SMEs.
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He suggested that the government provide special financial assistance to expedite support to ensure that affected SMEs can resume operations within a month of a disaster.
SMEs make up 98.5% of all businesses in Malaysia, contributing 36.6% of the country’s gross domestic product.
The Small and Medium Enterprises Association of Malaysia president Datuk William Ng has called for the government to provide clear guidelines to banks and insurers to speed up the handling of flood-related claims, ideally within 21 days to a month.
He said this would significantly aid in flood recovery and encourage more SMEs to purchase flood insurance.
“In flood-prone areas, especially industrial zones, it is essential for authorities to have separate disaster management plans for the general public and businesses. “The damage control and recovery work for both groups differ greatly. For instance, police patrols should be dispatched to commercial and industrial areas to prevent looting and break-ins. Clearing access to these areas should be prioritised equally with residential zones.
“A factory that’s partially submerged could take up to six months to return to normal operations. This includes cleaning, sanitation, loss discovery, employee counselling, obtaining financing for repairs, and re-establishing contracts. Much of this downtime and loss can’t be fully covered even with insurance,” he explained.
During the Taman Sri Muda floods in 2012, there were reports of looting even before the floodwaters had receded, catching many SME owners off guard, according to Ng.
“During such well-publicised flood incidents and with government pressure, many insurers completed their assessments and disburse payments within 30 days.
“Banks also offered loan repayment moratoriums or interest waivers. However, in other flood incidents, the claim process can take up to six months, and loan restructuring requests are subject to the banks’ discretion,” he noted.
Bumiputra Retailers Association president Datuk Ameer Ali Mydin called for increased support and tailored insurance offerings for SMEs because the measures are crucial in safeguarding their interests and fostering business resilience.
He highlighted the pressing issue of climate change affecting businesses, particularly SMEs, and the need for proactive government intervention to address the challenges faced by the sector.
“Some economists view insurance as an unnecessary expense, citing concerns about cost and potential difficulty in claiming insurance payouts. It is about educating SMEs on financial management, including opening accounts, book keeping, and tax compliance, to facilitate easier access to bank loans,” he said.
Ameer Ali pointed out the absence of specific insurance options tailored for SMEs to address risks such as floods and fires.
“The insurance industry must take proactive steps to assist SMEs in mitigating potential losses,” he said.
