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P2P Lending Malaysia

Peer-to-peer lending, otherwise known as P2P lending or financing is a relatively new concept in Malaysia and the government has taken progressive steps to regulate the industry with the Securities Commission announcing the regulatory framework for P2P financing in 2016 and the official approval of 6 peer-to-peer financing operators later in the year [1].

This has provided an alternative avenue for investors to seek higher-than normal banks’ fixed deposit returns in an increasingly challenging and inflationary economy.

What is P2P lending?

P2P lending in the Malaysian context refers to the opportunity for lay persons to pool together their money and invest in small-to-medium enterprises (SMEs) and businesses in Malaysia which are in need of capital for their operations.

Traditionally these businesses can only obtain financing via banks, which pose a hurdle as banks typically require some sort of collateral or at least a proven track-record. This means that new or small enterprises often encounter difficulties to obtain funds to sustain their operations or to expand their business.

SMEs as a group is a major engine of growth for the Malaysian economy and this obstacle to financing has been a major inhibitor to their growth. It was calculated that there is a RM80 billion gap in financing that has not been met. Thus, it is hoped that P2P lending can help fill that gap.

Worldwide, P2P as an alternative form of financing is fast becoming a proven alternative, given that over US$25 billion was raised on P2P platforms globally in 2015. That total is projected to grow to about US$96 billion by 2025, according to Securities Commission chairman Tan Sri Ranjit Ajit Singh. [2]

P2P financing operators act as platforms where companies can get access to funds directly from investors, resulting in a shorter turnaround time. All these are done online which means lower costs compared to traditional banks.

From another perspective, investors act as ‘banks’ that provide financing for these companies. In return, they earn a higher return on their investments compared to traditional fixed deposits.

Is P2P lending safe?

The main risk involved in P2P lending is the default risk whereby the company is unable to repay the loans. In the unfortunate event of default, investors only lose whatever amount they put into the particular investment.

Another risk event would be the shutting down of the P2P financing platforms, which is highly unlikely given that the platforms themselves are only acting as third party enablers that provide the underlying technology for the lending activities.

Who are the P2P Platform Operators in Malaysia?

Currently there are 6 official P2P platforms in Malaysia.

Platform OperatorWebsiteDescription
Funding SocietiesWell-established regional player with largest market share
B2B FinpalOwned by B2B Commerce, a supply chain management software provider
FundazticRobust P2P platform led by ex banking veterans and industry leaders
AlixCoOwned by FundedByMe, a Swedish-based equity crowdfunding platform
QuicKashOwned by ManagePay Systems berhad, an e-payment public-listed company
Nusa KapitalWorld's first shariah-compliant P2P lender

Why invest in P2P?

P2P is a great alternative avenue for investment. Let’s look at some of the advantages below:

Higher returns compared to fixed deposits

Investors get potentially higher return. Most of the investment notes offer rates higher than 5%.

Choose who you want to lend to

Before you part with your hard-earned money, you can check the company’s profile, sales and revenue figures as well as their plans for the purported loan.

Low Initial Starting Capital

You can start with as little as RM50. Most of the platforms allow miminum investments as low as RM100.

Compound Your Investment Returns

Reinvest your returns into new investment notes and compound your returns over the long run. Some of the P2P platforms offer auto-investing features based on preset conditions, which means you can essentially park your money into your account, set up the auto-investment feature and let your money compound itself without having to lift a finger.

P2P Lending Malaysia – A Solid Alternative Investment Avenue

P2P Lending in Malaysia is here to stay and the industry will only get exponentially bigger as more people accept it.

I sincerely hope you find this article useful. Do check out my other articles in which I review the different P2P platforms.

 

Source

[1] https://www.sc.com.my/digital/list_rmo/
[2] http://www.theedgemarkets.com/article/special-report-new-shot-funding-creditworthy-smes

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