Supply chain finance (SCF) remains relatively unfamiliar to businesses, particularly in the ASEAN region. It is, however, an area of finance that is commanding more attention especially as the COVID-19 pandemic compels SMEs and corporates to seek more efficient alternative lines of financing to support operations. Recognizing this gap, and the opportunities SCF can bring in the Islamic finance space, a group of Malaysians decided to introduce the region’s first Islamic fintech company to provide cross-border end-to-end Shariah compliant SCF: TFX Islamic. IFN Fintech speaks to CEO NORITA JA’AFAR to understand the market landscape and the problem statements the firm is attempting to address.
What is the current SCF landscape like in Malaysia? What is its market potential in the country as well as the wider region?
SCF is not new. In fact, in the western world, SCF has been implemented as early as a decade ago. In the region, we still see active participation in Indonesia and the Philippines by large conglomerates. It is always an infant in Malaysia, but PETRONAS took a big lead early last year with nine banks. It is still an untapped market in Malaysia.
We are glad to see that the government understands the importance. It has been announced in Budget 2021 by the minister of finance that some RM300 million (US$72.56 million) is allocated to EXIM Bank to adopt SCF. We estimate Malaysia has about RM100 billion (US$24.19 billion) locked up in accounts receivables, with accounts payables of RM20 billion (US$4.84 billion) available in public listed companies, anywhere between 30 and 90 days.
The trade finance landscape has significantly evolved, and many large corporations and SME businesses are seeking different avenues to improve the flow of cash in the supply chain significantly.
We have observed, particularly in the current difficult times, that large corporations are working hard to ensure that the supply chain is sustainable and vendors (who are particularly SMEs) are the lifeline to ensure their business performance. Extending SCF assistance to their vendors has to come hand in hand to ensure the supply chain is not disrupted end to end.
What type of businesses would benefit most from SCF services?
All businesses would benefit but more so for suppliers to larger corporations and vice versa, ie large corporations with many suppliers. For suppliers, especially those who are small and medium-sized, the benefits of SCF are numerous. It can:
- free up cash flow for their businesses to grow
- increase their available working capital
- provide easier access to financing without taking a loan or borrowings at a higher interest rate, and
- mean they will no longer be dependent on internal cash flows that are in turn reliant on prompt payments by their buyers.
TFX Islamic positions itself as the first Shariah compliant cross-border digital SCF platform in the region. What was the main idea behind setting up TFX Islamic?
We understand the pain points of SMEs. We were all entrepreneurs running SMEs; each of the board members has decades of experience. Having been working and sitting in several large corporates and public listed companies for decades too, we understand the requirement for cash flow optimization and strengthening of the balance sheet.
We also know how important it is to keep your companies’ financial health or wellbeing intact to ensure good credit relationships with banks. And we know what it takes to upkeep. There is a lot of awareness required in the SME space for this.
We also understand that cross-border sourcing is vital for a sustainable supply chain and settlement; payment and remittance across borders need to have speed and efficiency. This is where our parent companies in Singapore, Hong Kong and Refinitiv assist us in ensuring that we do it right.
We have the right team and partners in TFX Islamic.
Can you explain the TFX Islamic platform and how it works?
The TFX Islamic SCF platform connects funders, suppliers and buyers, integrating them into the supply chain and vendor management system digitally, providing better speed, security, transparency and simplicity.
This SCF solution ultimately lowers financing costs while improving business efficiency and optimizing cash flow for both suppliers and buyers, and ensuring risk is mitigated along with the supply chain system. It is a transactional and settlement trade finance platform. It also manages secured onboarding and handles cash management.
We still have to follow the regulators’ requirements, such as KYC [know your customer], credit assessment and other proper governance. With this, the SCF is supported by a robust [and] latest credit rating methodology that suits the challenges faced by businesses during the pandemic circumstances. We assess business holistically with the forecast instead of just historical data.
SCF is essentially technology-enabled. How then are your services different from that of banks and other SCF platforms?
TFX Islamic offers end-to-end SCF services and technology applications. We understand what it takes for corporates to achieve cash flow optimization and we also understand SMEs’ pain points. That is what our direct services and technology address.
Our credit rating methodology is developed by understanding the challenges of traditional credit assessment during this pandemic. With the moratorium and poor economic situation, how can any SME be eligible for financing with conventional credit assessment? So that is how our credit rating is different. We look at the business holistically and [the] forecast basis. We look at what other values its board and top management have to ensure its business continuity. Also, we are very relationship-driven with our clients. We:
- Offer data-driven analysis of the entire supply chain to determine importance and prioritization of different suppliers, and
- Assist corporate buyers with cash flow optimization for balance sheet improvement and sustainability.
Who are your main target markets? How do you plan to reach out to them?
We have a wish list of target clients we feel would benefit tremendously from our SCF platform, particularly in the Muslim countries. Malaysia, being at the forefront of Islamic finance, we believe is the best place to start and champion TFX Islamic.