Posted by: Financial Sith Lord | December 13, 2009

The TEKUN Issue: How to solve it?

For the past few days, I’ve been getting the smell of this Tekun issue, but it was only this morning that I read it in the news papers. Mingguan Malaysia published an exclusive front-page article regarding predicaments faced by the National Entrepreneur Fund, under the Ministry of Agriculture & Agro-based Industry.

In the report, Tekun Nasional is facing severe debt collection management issues, which results to them being unable to fund 16,000 applications. Tekun Nasional gives out loans to small entrepreneurs and businesses, with an amount ranging from RM 500 to RM 50,000 per application. The loan application process is extremely friendly as Tekun Nasional genuinely intends to help budding, aspiring and existing entrepreneurs / businesses to grow, by providing financial loans. This effort was to mediate the entrepreneurs from the hassle-full conventional loans with commercial banks and the ever-greedy loan sharks that is terrorizing the nation. The report further explains that from Tekun Nasional’s incorporation in 1999 until today, it has given out a total loan amount of RM 1.41 billion involving 153,102 applicants. During the first 10 months of 2009, it has approved and distributed  RM 277 million to 26,900 applicants. Their bad debts are at an alarming rate of RM 130 million involving 39,576 defaulters. Their current available funds stands at RM 100 million against the a total application amount of RM 350 million.

It is sad to see that whenever the government tries to assist the community with extremely flexible and friendly financial loans, irresponsible citizens just screws it up big time. Yes, there are those genuine defaulters where they did their business but their venture didn’t work, contractors that supplies their services but did not get paid, etc. These genuine defaulters can be forgiven, but the irresponsible hoodlums that applies for the Tekun Nasional funding and using for their own leisure and vanities, and simply decides to ignore their repayments. Some hoodlums created a business venture from the Tekun Fund!! What they did was deprived thousands of genuine hard-working businessmen, entrepreneur and traders from the possibilities of expanding their businesses and ventures, just so that they could provide a better life for their families.. Mind you, some of these people are living in wooden houses that could barely hold up its roof!!. In comparison to the ones that abuses the Tekun Nasional facility, they stay in brick walled link houses with Astros, PS3s and computers.

How can Tekun Nasional solve this issue? Yes, Tekun Nasional had issued their own Implementation Strategy for 2008, but I’m covering aspects that is not mentioned in the strategy. Ok, lets start from the overall structure:-

Main Overall Structure

1) Financial Procurement & Resources Management
2) Implementation and Monitoring
3) Creation of Entrepreneur Networking & Incentives Scheme

1) Financial Procurement & Resources Management

This is about how Tekun Nasional could raise the desired cash supply, enabling them to give out new loans, and ways of how to manage such resources.

The Tekun Nasional gets its fund from an allocation from the Ministry of Agriculture & Agro-based Industry. The MOA gets its funds from the Federal Government’s yearly budget. At present, Tekun only has 2 source of Cash In-Flows, 1) Repayments and Profits obtained from borrowers and 2) Budget from MOA. Obviously, the No.1 source can’t be that secure as its dependent on various elements, such as political and economic climates, weather conditions etc. The only source that is more or less secured is the No. 2 source, which is allocation from MOA. Now, if Tekun Nasional was dependent on this source alone, sooner or later, the Federal Government would end-up poorer and those hoodlum scoundrels being richer. There must be an alternative mechanism that generates income and secures cheap financing for Tekun Nasional. The best feasible ways are as follows:

For Income Generating Mechanism: There are hundreds of active licensed asset management companies, that could generate approximately between 9 – 15% returns per annum. If Tekun were to invest their funds with these Fund Managers, that could reap the benefit of their expertise and knowledge of the markets.

For Securing Cheap Financial Supply: MOA is into agriculture and everyone in the financial sector knows for a fact that the agriculture business is high in potential, provided that the technology and operators are solid. MOA being the authority in agro-based businesses in Malaysia adheres to those 2 basic requirements. With that, Tekun Nasional should issue a Sukuk amounting to say RM 500 million, maturing in 5 years, with a coupon profit rate of 7% annually. The 7% yield is definitely more attractive than the 1Malaysia bonds of 5%. Many would say that the Malaysian bond market is dead, but things are different if it was a Sukuk in an international currency, thus being traded internationally.

2) Implementation and Monitoring

Obviously, Tekun Nasional would have to tighten up a bit of their credit control and evaluation procedures. There’s nothing much you could do with the small amount loans (probably better off if its were to be classified as Benevolent or Qard-Ul-Hassan). The bigger ones like RM 10,000 and above, it would be wise for Tekun Nasional to get involve directly with the applicant’s financial operations. The simplest way is to ensure that all loans are deposited into a current account, where an official of Tekun Nasional would be a compulsory co-signatory. This would solve the implementation part and partially solves the monitoring part. As for Monitoring, other than being involved directly with the applicant’s financial operation, Tekun Nasional could also make full use of their vast network of borrowers, so as to provide random cross-reporting between applicants. That way, it would be virtually impossible to fabricate progress reports.

3) Creation of Entrepreneur Networking and Incentive Schemes

The creation of Entrepreneur Networking would not only solve the monitoring element, but also ensures the applicant business’ growth. Entrepreneur Networking (in this context) is cross-selling of products or services. I’m sure that out of the many Tekun Nasional applicants, there would be correlations between their businesses. Create incentives where Tekun Nasional members gets attractive discounts from other Tekun Nasional businesses or services. Another applicable incentive that would totally wipe-out third-party involvements is a ‘Member-Get-Member’ incentives. Tekun Nasional would have to be smart to offer great financial incentives for this scheme, for it to be successful. Remember, financial incentives are the best as these applicants are in the Tekun Nasional program for monetary reasons.

What say you?


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