Bank Muamalat, CGC Launch Halal Guarantee-i Scheme for SMEs

In a bold step to reinforce Malaysia’s halal economy, Bank Muamalat Malaysia Berhad, in partnership with Credit Guarantee Corporation Malaysia Berhad (CGC), has unveiled the groundbreaking Halal Portfolio Guarantee-i Scheme. This innovative initiative is tailored to meet the unique financing needs of small and medium enterprises (SMEs) operating in halal industries. With a fund of RM70 million, the scheme aims to provide a much-needed financial safety net while adhering strictly to Shariah principles.

The launch comes at a crucial time, as SMEs represent nearly 97% of all business establishments in Malaysia, playing a pivotal role in driving the country’s economic growth. By addressing critical challenges faced by halal SMEs, this scheme not only enhances financial accessibility but also aligns with the global demand for halal products and services.

The Halal Guarantee-i Scheme

The Halal Portfolio Guarantee-i Scheme is designed to empower SMEs engaged in halal-related sectors, providing them with Shariah-compliant financing solutions. This program reflects Bank Muamalat’s commitment to fostering a supportive ecosystem for halal businesses, which include industries such as food and beverages, cosmetics, pharmaceuticals, and logistics.

Key features of the scheme include:

• Funding: Backed by an RM70 million fund, the scheme is strategically structured to cater to SMEs’ diverse financial needs, from operational costs to capital expenditure.
• Financing Terms: Businesses can benefit from maximum tenures of up to seven years for SMEs and three years for micro SMEs, allowing for long-term financial planning.
• Applications: The financing can be used for various purposes, including halal certification, asset acquisition, working capital, and capacity building.
• Shariah Compliance: The scheme ensures that all transactions align with Islamic financial principles, avoiding interest (riba) and uncertainty (gharar).

The global halal economy is on an upward trajectory, with the demand for halal-certified products and services surging worldwide. According to the State of the Global Islamic Economy Report 2022/23, Muslim consumers spent approximately $2.09 trillion on halal products in 2021, a figure expected to grow to $2.8 trillion by 2025.

In Malaysia, the halal sector contributes significantly to GDP, making initiatives like the Halal Portfolio Guarantee-i Scheme critical for maintaining competitiveness in this expanding market. By supporting SMEs, which form the backbone of the halal industry, the scheme strengthens Malaysia’s position as a global halal hub.

Challenges Faced

Despite the potential of the halal economy, SMEs often face several hurdles that impede their growth and sustainability. Common challenges include:

1. Access to Financing: Traditional financial institutions often perceive SMEs, especially those in niche halal sectors, as high-risk borrowers. The lack of collateral or credit history further compounds this issue.

2. Halal Certification Costs: Obtaining and maintaining halal certification is an essential yet costly process for businesses seeking to operate in this sector. The certification not only ensures compliance with Islamic principles but also enhances market credibility.

3. Global Market Entry: Many halal SMEs struggle to scale their operations and penetrate international markets due to limited resources and knowledge about global trade regulations.

4. Technological Gaps: The integration of modern technologies, such as digital marketing tools and supply chain management software, remains a challenge for smaller halal businesses.

The Halal Portfolio Guarantee-i Scheme addresses these challenges by offering tailored financial solutions that empower SMEs to overcome these barriers and capitalize on growth opportunities.

As a key partner in this initiative, CGC plays an instrumental role in providing credit guarantees that mitigate risks associated with SME financing. By reducing the financial risk for lenders, CGC enables Bank Muamalat to extend credit to a wider pool of SMEs, particularly those that may lack traditional forms of collateral.

This collaboration exemplifies the power of public-private partnerships in fostering economic development. Through CGC’s support, the Halal Guarantee-i Scheme creates a win-win scenario where SMEs gain access to affordable financing, and financial institutions are incentivized to invest in the halal sector.

Bank Muamalat’s President and CEO, Khairul Kamarudin, highlighted the institution’s unwavering commitment to empowering small and micro businesses in Malaysia. “In response to the government’s call to support SMEs, we have introduced initiatives like the Halal Portfolio Guarantee-i Scheme to ensure businesses have the resources to thrive,” he said.

This vision aligns with the broader objectives of Malaysia’s government and Bank Negara Malaysia, which have consistently championed the role of SMEs in driving economic growth. With nearly 97% of Malaysian businesses falling into the SME category, initiatives like this are essential for fostering innovation, job creation, and long-term sustainability.

Shariah Compliance

One of the standout features of the Halal Guarantee-i Scheme is its strict adherence to Shariah principles. Islamic finance operates on the foundation of ethical and socially responsible investing, ensuring that financial transactions are free from exploitative practices such as interest (riba) and uncertainty (gharar).

This ethical framework not only appeals to Muslim business owners but also attracts non-Muslim stakeholders who value transparent and fair financial dealings. By embedding these principles into the scheme, Bank Muamalat ensures that the financing solutions are both inclusive and aligned with the moral values of its clientele.

Government Initiatives for Halal Guarantee-i Scheme

The Malaysian government has been proactive in promoting the halal industry as a key pillar of its economic strategy. Through initiatives such as the Halal Industry Master Plan 2030, Malaysia aims to solidify its position as a global leader in halal trade and innovation.

Key government efforts include:

• Halal Certification: Subsidies and grants are provided to assist businesses in obtaining halal certification, reducing the financial burden on SMEs.

• Capacity Building: Programs designed to enhance the technical and managerial skills of SME owners, enabling them to navigate the complexities of the halal market.

• Export Promotion: Efforts to facilitate market access for halal SMEs through trade missions, international exhibitions, and bilateral agreements.

The Halal Guarantee-i Scheme complements these initiatives by addressing the financial challenges that often hinder SMEs from leveraging these opportunities.

The introduction of the Halal Guarantee-i Scheme has implications far beyond Malaysia. As the global halal economy continues to grow, other countries may look to Malaysia as a model for integrating Islamic finance with SME development.

By demonstrating how Shariah-compliant financing can be effectively applied to support economic growth, this initiative positions Malaysia as a thought leader in both the halal industry and Islamic finance.

Success Stories

The true impact of the Halal Portfolio Guarantee-i Scheme lies in the success stories of the businesses it supports. For instance:

• A Halal Food Manufacturer: A small-scale producer of halal snacks leveraged the scheme to upgrade its production facilities and expand distribution channels, enabling it to secure contracts with major retailers.

• A Halal Logistics Provider: A logistics startup specializing in halal-certified supply chains used the financing to invest in refrigerated vehicles, ensuring compliance with halal standards for food transportation.

• A Halal Cosmetics Brand: A budding entrepreneur in the cosmetics industry utilized the scheme to obtain halal certification and launch a new product line, gaining traction in both local and international markets.

These examples highlight the transformative potential of the scheme in enabling SMEs to scale their operations and compete in the global halal market.

While the Halal Guarantee-i Scheme represents a significant step forward, some challenges need to be addressed to maximize its impact:

1. Awareness: Ensuring that SMEs across Malaysia are aware of the scheme and its benefits is critical for its success.

2. Scalability: As demand for Shariah-compliant financing grows, additional funding and resources may be required to expand the scheme.

3. Monitoring: Establishing mechanisms to track the outcomes of the scheme and assess its impact on SME growth will be essential for continuous improvement.

Looking ahead, Bank Muamalat and CGC have the opportunity to refine and expand the program, making it a cornerstone of Malaysia’s halal economic strategy.

The Halal Portfolio Guarantee-i Scheme is a game-changing initiative that underscores the importance of Shariah-compliant financing in supporting Malaysia’s halal SMEs. By addressing key challenges such as limited access to funding and high certification costs, the scheme empowers businesses to thrive in an increasingly competitive market.

As Malaysia continues to champion the halal economy, initiatives like this will play a crucial role in driving sustainable growth and cementing the country’s position as a global leader in Islamic finance and halal trade. With its innovative approach and strong collaborative framework, the Halal Guarantee-i Scheme sets a benchmark for other nations seeking to integrate ethical finance with economic development.