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Alternative Funding Sources for Businesses

Rural Economic Funding Scheme (SPED)

Rural Economic Funding Scheme (SPED)

1. Introduction

Rural Economic Funding Scheme (SPED) is one of the packages under economic development programs implemented by Ministry of Rural and Regional Development (KKLW) to fulfill the need of entrepreneurs in rural areas. SME Bank has been appointed by the Government through KKLW to be the implementing agency for this scheme starting on January 10, 2001.

2. Scheme Objectives

  • To increase the number of rural Bumiputera entrepreneurs in all viable economic activity allowed by law;
  • To improve the industries entered by the rural Bumiputera entrepreneurs to becoming more viable, competitive and resilient as well as to boost their own commitment; MQA
  • To provide funding facilities for rural Bumiputera entrepreneurs in order to assist them to start and to improve the rural economy;
  • To provide a collateral-free funding scheme with a low installment rate; and
  • To increase the involvement of rural Bumiputera entrepreneurs in rural economic activities that has more potential and viable in order to create a Bumiputera Trade and Industry Community (MPPB) among rural residents.

3. Scheme Features

Financing Concept

Financing is based on Syariah concepts (Ijarah Thummalbai, Bai’ Bithaman Ajil, Bai Murabahah dan Bai’ Dayn).

Purpose of Financing

  • Purchase of machines/equipment that would help to upgrade the business/industry;
  • Working capital financing for purchasing of raw material, semi-finished goods and finished goods;
  • Revolving working capital financing can be considered for business involved in contract/periodical order;
  • Renovation or upgrading of the business premise;
  • Purchase of commercial vehicles such as lorry, van and other vehicle to enhance and support for business/industry is allowed and must be apply together with financing for the purchase of machinery/equipment, working capital or renovation of business premise;
  • Purchase solely of commercial vehicles is allowed, especially for business that involve in services such as mover and tourist boat;
  • Financing for the purpose of Bank Guarantee (Kafalah) can be financed if required/necessary to any business contract and shall be applied together with financing for the purchase of machinery/equipment, working capital or renovation of business premises; and
  • Financing the cost of takaful to protect financing under SPED.

Financing Limit

RM20,000.00 – Maximum RM250,0000.00 (for entrepreneurs who operate less than 3 years);
RM20,000.00 – Maximum RM500,000.00 (for entrepreneurs who operate more than 3 years);

Financing is allowed for as much as 3 times with conditions:

  • Not exceed the maximum eligibility limit;
  • Application after a period of one year from the release of first or second financing;
  • Business in good operation and show improvement in performance; and
  • First and second financing have no arrears and repayment is made according to schedule;
  • Maximum RM100,000.00 for working capital financing; and
  • Maximum RM30,000.00 for small scale business which operate in residential premise.

4. Repayment Period

  • 3 to 5 years (financing of RM250,000.00 and below);
  • 5 to 7 years (financing of RM250,000.00 – RM500,000.00); and
  • 3 years with yearly review (for revolving working capital financing).

5. Grace Period

A period where principal repayment is deferred up to 6 months from financing release date.

6. Awarding of Grant

For financing with scheduled repayment, the awarding of Government grant of 30% from principal financing release will be considered for customer who have received financing of RM250,000.00 or below and fulfilled the following criteria:

  • Customer have paid 70% of the total financing amount;
  • Customer financing account is not in arrears and financing repayment does not exceed the scheduled repayment date;
  • Customer financing account has not been reschedule/restructure;
  • Improved in business performance; and
  • Awarding of grant is limited to the first financing only.

For revolving working capital financing, the awarding of Government grant subjected to following conditions:

  • Customer financing account is not in arrears and financing repayment does not exceed the repayment date;
  • Customer financing account has not been reschedule/restructure;
  • Improved in business performance;
  • Awarding of grant is limited to the first financing only;
  • Grant calculation is based on 30% of release amount or 30% of approval amount, which ever lower;
  • Any Purchase Order/Letter of Offer and/or Invoice which has been financed but pending repayment by contract awarder shall not be considered for the grant calculation unless settlement done by the customer;
  • After the expiry of a financing facility (normally 3 years); and
  • Minimum 3 times usage.

7. Scheme Features

5% per annum based on monthly rest balance.

8. Financing Scope

  • Manufacturing Industry;
  • Services Industry (including retail/trading activity, medical services such as clinic, pharmacy, lab, hospital, ambulance service and etc, professional services such as legal, consulting, accountant and insurance, educational service such as training centre and college, petrol station and contractor class F which involve in construction and service activity in rural area with project value < RM200,000.00);
  • Rural Tourism; and
  • Financing for companies under micro and small category only.

9. Non-Funded Economic Activities

  • Large scale industries/businesses such as the exploration and excavation of petroleum/minerals, housing projects and hotels;
  • Purchase of fixed assets for the purpose of reselling or renting, such as purchase of industrial sites/land, shops and factories/workshops and vehicles;
  • Purchase of vehicles for public transportation use and for renting;
  • Activities not fulfill to syariah concepts such as selling of liquor, gambling, night club and etc;
  • Financing for the purpose of debt-repayment (reimbursement) or refinancing existing facility.
  • Exception for reimbursement is allowed under the following condition:
  • Purchase done after approval date;
  • Type of machine/equipment purchase are the same as per approval;
  • Project/business financing has been carried out by the applicant before approval;
  • Commodity agricultural activities such as palm oil, rubber etc;
  • Livestock activities;
  • Financing for construction of new building; and
  • Working capital financing cannot be used to finance pre-operation, salary, utility bill, legal fee, cost related to registration of company and payment related to licensing of business/industry.

10. Condition For Application

  • The business/industry is wholly (100%) Bumiputera-owned;
  • The business/industry is registered with the Companies Commission of Malaysia;
  • Obtained business license from Local Authority;
  • Priority for business/industry located in rural area;
  • The entrepreneur is involved in the business/industry full-time;
  • The business premise is separated from residential premise. However, for small scale activities like tailor, trading, food processing, handicraft and etc which operated in residential premise is exempted but only allowed for financing not more than RM30,000.00 and subjected to fulfill additional conditions as below:
  • Business has been in operation prior to submission of SPED’s application;
  • Not using high powered machine/equipment and not dangerous;
  • Obtained consent from Local Authority;
  • Owned business license; and
  • Activities not harm to residence;
  • If the premise of the business/industry is set up on the land not owned by the applicant, consent from land owner must be obtained and approval from Local Authority/’Pentadbiran Tanah Daerah’ (for land belong to the Government);
  • Entrepreneur or the company has never obtained financings from other banks or financial institutions and other Government funding more than RM250,000.00 (excluding financing for first house). However, SPED financing can still be apply if such financings have been repaid at least 75%;
  • The entrepreneur observes all government regulations including the Codes on Food Hygiene Practice and Industrial Waste and the Environmental Pollution Act and etc;
  • Viable business; and
  • The applicant is not over 60 years old.

11. Collateral

  • Machines/equipment financed based on the agreement and the machines/equipment will be taken as the financing collateral;
  • No collateral will be imposed for financing which does not involve machinery/equipment/building/land.
  • Deed of Assignment of Payments is taken for revolving working capital financing; and
  • Bank can take debenture on company asset if required.

12. Takaful

The customers are required to take a takaful on the machine/equipment during the financing period; and For financing which are not for machine financing, the takaful requirement will be determined in accordance to requirement such as Group Credit Family Takaful Plan.

13. Stamping And Legal Costs

The Implementing Agency will charge stamp duty on the Facility Agreement or other documents and related legal fees based on standard and reasonable rates; and
Other conditions that may be imposed from time to time.

14. Release Of Financing

The Implementing Agency will release the financing direct to the supplier after the following rules and conditions are complied with:

  • Perfection of Financing Agreement;
  • Submission of purchase invoices and etc under the bank’s name;
  • Acceptance of offer, conditions and rules as stated in the Offer Letter;
  • Acknowledgement receipt of machines/equipment through the Certificate of Acceptance and
  • Satisfaction document;
  • Submission of a Comprehensive/All Risk insurance note/policy;
  • Payment of legal fees and other cost relating to the preparation, registration, stamp duty and other expenses;
  • Customer are required to attend courses on Performance Improvement Training; and
  • Fulfillment of other approval conditions.

15. Scheme Implementation Committee

Application is processed through 2 stages of committee:
Technical Evaluation Committee – the Bank to become secretariat; and
SPED Main Committee – the Ministry of Rural and Regional Development to become secretariat.

16. Application Procedure

Using the SPED Application Form which can be obtained at the Head Office or Branch Office of the Implementing Agency or at KKLW;

The guide to filling up the form and preparing a project paper is included along with the application form;

Obtained signature from Local Representative (Member of Parliament, Member of State Legislative Assembly/JKKK) on SPED form; and

Two (2) copies of the application form must be filled and submitted together with the project paper and related documents as follows :

THE FIRST SET is to be submitted to KKLW for screening on compliance with policies, conditions and scope of financing;

THE SECOND SET is to be submitted to the Implementing Agency i.e. SME Bank for a technical evaluation on the aspects of management, marketing, finance and project viability.

The implementing Agency will only accept and process a complete application.

17. Decision of Application

Approved applications will be notified by the Implementing Agency, while not considered applications will be notified by KKLW.

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