CTOS launches SME credit score to standardise creditworthiness measure

• Three types of scores for different businesses bundling entity, business owner data
• Previously, banks relied on their own internal scoring methods and intuition

CURRENTLY, there are almost a million SMEs in Malaysia contributing 37% to the national GDP. This figure is expected to rise to 41% by 2020.

SMEs also make up 98% of local businesses and create employment for two-thirds of all working Malaysians. However, unlike larger businesses, SMEs often lack large cash reserves and have limited cash flow, essential factors to any businesses’ long-term success.

In order to provide an easy and universal assessment of creditworthiness for small medium enterprises (SMEs), CTOS Data Systems Sdn Bhd recently launched the CTOS SME Score.

The CTOS SME Score will also help SMEs extending credit to businesses and owners in making quick, consistent and objective decisions.

CTOS group chief executive officer Dennis Martin, said that the CTOS SME Score will allow businesses to make credit decisions within minutes rather than several days.

“In an increasingly congested SME financing segment, we also anticipate that the quick turnaround time and comprehensive access to data offered by the solution will be the trigger point for SME decision makers when looking for financing.”

The launch also featured a memorandum of understanding (MoU) signing between CTOS, OCBC Bank Malaysia Bhd and Peoplelender Sdn Bhd (Fundaztic) for the adoption of the credit score.

Developed in collaboration with Fico, the developer of the de facto standard of credit scoring in the United States, the three-digit score represents an SME’s credit risk. The score, which ranges from 100 to 400 gives all Malaysian businesses working with SMEs on credit, a standard rating scale and single point of reference.

Based on CTOS SME Score analyses of one million SMEs in Malaysia, 54% of companies, 60% of partnerships and 52% of sole proprietors have recorded a CTOS SME Score of 290 or more, indicating average to excellent creditworthiness.

CTOS Data System director Wong Pau Min, explained the three different types of scores which are the company SME score, partnership SME score and sole proprietor SME score. The latter two are blended scores of “the entity’s data as well as each individual business partner.”

As a comprehensive industry score, the CTOS SME Score is made up of CCRIS Company Credit Data and CCRIS Consumer Credit Data from Bank Negara Malaysia, filing data maintained at national registrars as well as financial data and ratio and business information and proprietary CTOS Data maintained by bureau partners.

During a panel session at the launch, Lim Hong Tat, the former group CEO of community financial services at Malayan Banking Bhd, said that although banks are increasingly looking to SMEs as a market, lending money to a new startup is an area beyond its risk appetite. “For a new startup, you should go to a VC, take a personal loan or even use P2P lending.”

Previously, banks relied on their own internal credit score for SME lending. “The internal score was not predictive. It was more based on intuition,” he said, explaining how the CTOS SME Score will speed up and ease processes.

The CTOS SME Score is able to provide updates on an SME’s current financial standing, allowing for pre-emptive action to be taken against potential bad debts or late payments. In addition to reducing an SMEs exposure by flagging high-risk customers in an existing portfolio, the CTOS SME Score is also able to generate business leads by identifying potential customers.

Pre-screening of potential customers will improve prospecting, sales and operational efficiency. SMEs will also be able to use the CTOS SME Score to quickly and accurately ascertain a customer’s creditworthiness and provide better turnaround times on credit decisions.

As an introductory offer, CTOS SME Score will be available for RM9.90 until Sept 30 this year, discounted from RM15.20. CTOS Credit Manager subscribers will also enjoy a free CTOS SME Score self-check to experience the solution first-hand.