PETALING JAYA: Small and medium enterprises (SMEs) are vulnerable to floods and more should be done to alleviate the losses they incur from natural disasters, according to a report by the World Bank and Bank Negara Malaysia.
SMEs were more likely to report financial damage compared with larger businesses and were also more likely to cite indirect losses due to the impact of floods on their customers and employees.
“About 75% of businesses stated that supply chain bottlenecks were the main cause for delays in returning to operations,” said the report titled Managing Flood Risks – Leveraging Finance for Business Resilience in Malaysia, based on a survey of 1,500 businesses in the country.
Limited access to finance was a significant barrier for local businesses, especially SMEs, to manage flood risks.
Businesses with limited access to financial resources for flood preparedness had greater revenue losses associated with floods, while limited access to insurance can constrain recovery efforts as the payouts are an important source of funding for such expenditures, the report said.
It also highlighted that floods were Malaysia’s most frequent natural disaster, accounting for 85% of all natural disasters since 2000.
The survey also revealed that financial institutions, namely banks, insurers and takaful operators, faced challenges in terms of pricing, monitoring and diversifying flood risks.
This was partly due to marked data gaps and the inability to adequately quantify flood risks.
“These factors hinder their ability to serve Malaysian business, especially high-risk ones, adequately,” the report said.
The public sector, it said, played a pivotal role as the primary provider of large-scale flood control infrastructure to ensure the resilience of critical infrastructure and service delivery.
“It is also responsible for a range of policies such as urban planning and land use restriction in flood-prone areas, among other responsibilities.”
The report said private sector efforts should build on and complement the public sector.
“However, a range of financial market inefficiencies call for policy intervention to support greater access to finance and insurance for businesses, especially the most vulnerable such as SMEs,” it added.
Among the policy actions proposed are enhancing data availability and affordability to support flood risk assessments, and developing a long-term flood risk adaptation strategy.
It also proposed strengthening the financial sector to ensure adequate risk management and foster financing towards adaptation and resilience.
The insurance market was also urged to enhance offerings and promote flood risk awareness.
