SC to unveil peer-to-peer lending framework

How does P2P help: Through these platforms, a lender can earn interest by lending to borrowers based on their risk appetite. On the other hand, people who need money can borrow at a lower cost, compared with getting a loan from the bank. This is especially so when the borrower cannot show the banks their credit worthiness. At the same time, some of the loan amount by the borrowers can be too small for the banks to make sufficient profits.

KUALA LUMPUR: The Securities Commission (SC) will introduce a framework for peer-to-peer (P2P) lending next year.

This is in line with the growing interest in the development of this area.

Notably, P2P lending has grown significantly in other big markets like the United States, China, the United Kingdom and India.

As P2P lending platform providers borrow and lend money, they are required to adhere to minimum expectations set out by the regulators.

Through these platforms, a lender can earn interest by lending to borrowers based on their risk appetite. On the other hand, people who need money can borrow at a lower cost, compared with getting a loan from the bank. This is especially so when the borrower cannot show the banks their credit worthiness.

At the same time, some of the loan amount by the borrowers can be too small for the banks to make sufficient profits.

In this intricate business, it is the credit scoring that “makes or breaks” P2P lending.

“You need to have the right matrix to determine the credit quality of the borrowers so that lenders can decide how much to lend,” said SC market development executive director Goh Ching Yin.

Some of the ways used to determine borrowers’ credit rating include big data, the borrower’s behaviour on social media and other digital footprints.

Such activities are made possible because of technology, marking the emergence of financial technology or better known as fintech.

Besides P2P lending, equity crowdfunding and mobile payment are other forms of financial activities that come under the big umbrella of fintech.

Understanding its tremendous potential, the SC has started the initiative, known as afFINity@SC, to catalyse the growth of the sector, as well as to provide policy and regulatory clarity on new fintech areas to promote responsible financial innovation.

More importantly, fintech will encourage more innovation in the financial services industry, which includes the capital market space.

The SC will work with other relevant stakeholders, including innovators, investors and other authorities, to push the sector forward.

It will be done by:

> Creating awareness and catalysing innovative fintech solutions;

> Forming clusters to organise and nurture a wider fintech ecosystem; and

> Providing policy and regulatory clarity that is conducive for innovation.

“It is important for innovators to let the regulator know the products and services they plan to offer before deployment in a traditionally regulated sector like financial services,” Goh added.

The regulatory body will organise all queries and expressions of interest received into various clusters, which form across different groups of stakeholders.

Once interest in a specific cluster gains considerable traction, afFINity@SC may convene a focus group to discuss and collaborate towards introducing technology-driven innovations and solutions.