From Hildah Hamzah

Imagine this scene, one that plays out every morning across Malaysia. A warung owner who has run his small business for nearly 20 years rises at 4am to brew coffee and prepare his signature nasi lemak.

But behind the warm greeting to his regulars when he opens for business is his silent ambitions, overshadowed by a cluttered mind weighed down by rent, wages and whether suppliers will extend him credit for the week.

This story isn’t unique. Whether it’s a tailor in Kota Bharu, a char kuey teow seller in Penang, or a minimart in rural Sarawak, Malaysia’s micro, small and medium-sized enterprises (MSMEs) pour their sweat and soul into their businesses.

They are the powerhouses of the economy, generating close to 40% of GDP and employing almost half the workforce. Yet they often operate on razor-thin margins, navigating the fine line between success and failure.

For too long, our financial system has not felt like a partner. Loan approvals can take weeks. Credit requirements appear designed for corporations, not neighbourhood “kedai”. And outside the cities, visiting a branch may cost an entire day of work.

Then came the pandemic, and the rules of commerce were rewritten overnight. Cafes began taking orders via Instagram. Bakers became TikTok celebrities.

Going digital was no longer an option; it was survival. And in making it, Malaysian businesses showed they didn’t just survive a crisis, but redefined themselves.

But here’s the catch: while MSMEs embraced social media and online sales, their access to financial services didn’t keep pace. Traditional banks still relied on paperwork and face-to-face meetings. Many small business owners, especially in rural areas, were locked out of the very tools they needed to grow.

If the pandemic didn’t kickstart the need for banking flexibility, it certainly accelerated it. This is where digital banks come in.

MSME banking for a new era

The arrival of digital banks in Malaysia is more than new competition. It represents a shift towards banking that matches the flexible, always-on rhythm of small businesses.

Instead of weeks of waiting, digital banks are designed for speed. Approvals can happen within minutes thanks to e-KYC and e-KYB verifications.

Instead of rejecting applicants for lacking a formal credit history, they assess risk through trade data, sales records or transaction histories. Repayment terms can mirror the peaks and troughs of a business’s cash cycle.

Artificial intelligence (AI) is taking this transformation further. With fraud detection powered by AI, suspicious transactions can be flagged instantly, cutting review times and improving accuracy. At GXBank, for example, AI-enabled fraud checks have reduced review times by six times while enhancing consistency.

From pain points to growth points

For MSMEs, this means long-standing pain points are finally addressed.

Being labelled “too high-risk” no longer needs to be a barrier. Time lost to paperwork and in-person banking can now be spent on customers, production and marketing.

Even technology gaps are narrowing as mobile-first design makes it possible to run a business’s finances from a phone, whether the owner is restocking inventory at dawn or running a livestream sale at midnight.

Digital banks want to change the narrative. Lower overheads mean lower costs for customers. An AI and mobile-first design means even small businesses can get personalised financial advice, manage cash flow, and access funding quickly; all without needing to “fit” into a corporate mould.

For MSMEs without the budget for a finance team, this level of automated, data-driven insight could be the competitive edge that helps them compete with much larger players.

Why this moment matters

Around the world, digital banks are already making a difference. In Mexico, Verqor assesses loan eligibility based on trading data rather than traditional credit histories. For MSMEs without a formal record, this opens the door to affordable financing. The result is a non-performing loan rate of just 1.7%, showing how innovation can support MSMEs while protecting lenders.

Now, let us return to the roadside warung owner from the beginning. Those mental calculations about rent, wages and credit are the very pain points digital banks are built to solve.

The safety net needed is not just a loan but foresight: knowing when financing will be required and having access to it. The springboard for growth is not just capital, but the ability to see the financial DNA of the business, turning survival into a scalable enterprise.

Covid-19 forced these small businesses to become digital experts. Now, digital banks can help them go from digital survivors to continuing to be the backbone of Malaysia’s new economy.

But this will require the right partnerships between banks, government, and the businesses themselves. Then Malaysia could see a generation of MSMEs not just keeping up with change, but driving it.

Hildah Hamzah is the deputy CEO and COO of GXBank.

The views expressed are those of the writer and do not necessarily reflect those of FMT.