Franchising:
Commercial banks keeping their distance

Their reluctance to approve loans to small franchisees is due to their perception towards the industry, says Francorp Malaysia president

MALAYSIA'S commercial banks are not giving enough support to the local franchise industry, industry executives say.

"Banks are still reluctant to give out loans, especially to local franchisees. But they have no problems extending loans to large franchisees," Francorp Malaysia Sdn Bhd president and chief executive officer Affandy Faiz said in an interview with Business Times.

Affandy said their reluctance to approve loans to small franchisees is due to their perception towards the industry.

"Maybe its because the local franchise industry does not take off well enough," he said, adding that bank officials are still unfamiliar with the franchise business.

Although banks have franchise packages, the loans come with too many conditions, he said.

"This has posed a challenge to local franchisees who have just started their businesses. Surely they don't have a track record yet, but banks should see the track record of their franchisors," he said.

Daily Fresh Foods Sdn Bhd food chain manager Md Asyraf Yong said commercial banks in Malaysia tend to see franchise as a risky business.

This is because franchise is relatively new in the country.

"A lot of franchises fail in Malaysia because they don't develop the system properly.

"So, commercial banks see franchising as a risky business, unlike in Australia and New Zealand," he told Business Times.

He said rules should be put in place to monitor franchisors' activities so that the success rate of a franchise business can be enhanced.

Francorp's Affandy said franchising is totally different from a normal business and banks should not treat it like any other business.

"Franchise businesses can grow by 20 to 30 times, and if they are bank clients, imagine how much business this would bring to the banks," he said.

He said the social and economic spin-offs from franchising is tremendous. This is because suppliers to the franchisees and franchisors also grow in tandem.

Affandy said there are franchise funds allocated by the government for aspiring entrepreneurs to be involved in the industry.

However, not many people are aware of the availability of such funds.

Affandy also believes that financial institutions should set up a revolving fund for franchisors and franchisees.

Meanwhile, Daily Fresh's Md Asyraf said development financial institutions like the SME Bank are more familiar with the franchise business.

That is why these institutions are more forthcoming in extending loans to franchisees compared to commercial banks.

Md Asyraf said the guarantee for bank loans comes from the success of the franchisor, who has always been careful in ensuring the high success rate of the business.

He said Daily Fresh, the franchisor of casual kiosk and cafe selling snack food and beverages, works closely with Perbadanan Nasional Bhd and government banks.