PETALING JAYA: A significant number of parties are scurrying to submit their applications to run peer-to-peer (P2P) lending platforms, the latest in financial technology (fintech) initiatives being carried out by the Securities Commission (SC).
Industry sources said these include some large corporates, financial institutions, tycoons and technology entrepreneurs.
Sources said there could be as many as 100 parties applying for a licence to run the platform.
Submissions have been open from May 2 and will close on July 2.
“A number of parties applying reckon that the licence (to operate a P2P lending platform) is as good as getting a banking licence,” noted an industry player.
The P2P is the second initiative by the SC in the fintech space after equity crowdfunding (ECF).
Six parties were picked to run ECF platforms and it was speculated that there were around 30 applicants then.
ECF is a platform where the public can invest in a business venture or start-up in exchange for equity in the company.
Meanwhile, the P2P platform allows investors to provide financing to businesses or companies, where investors will receive a pre-fixed interest from the financing.
Going by the experience abroad in P2P growth, it is obvious why that segment is garnering more interest compared with ECF.
According to Massolution’s Crowdfunding Industry 2015 report, the total crowdfunding industry’s fund-raising volume in 2015 was an estimated US$34bil.
From this amount, ECF volume totalled only US$2.56bil, while P2P lending made up US$25.1bil.
Massolution is a research and advisory firm specialising in crowdsourcing and crowdfunding industries.
It is also understood that there will be more P2P licences issued compared with ECF.
Applicants for running the P2P platform here are also coming from foreign parties who are already operating such platforms in other countries.
It is left to be seen, though, how successful the platform will be in Malaysia. In Singapore, there are some platforms which seem to have garnered some traction, such as MoolahSense and Funding Societies.
According to a Singapore Straits Times article, MoolahSense, Funding Societies and Capital Match alone raised more than S$10mil for small and medium-sized enterprises (SMEs) last year.
The P2P platform in Singapore first kicked off in 2005, but only gained strength after the 2009 global financial crisis, when banks tightened the loan criteria, reports indicated.
One of the biggest challenges in running a P2P platform is to be able to sufficiently assess the creditworthiness of borrowers.
Non-repayments will shoo away the providers of credit and spell an end to any P2P platform.
In this sense, one industry observer reckoned that P2P in Singapore had the advantage of having stricter enforcement of bankruptcy laws in that country.
“In Malaysia, the enforcement isn’t as good.
“As such, even if the borrowers do provide personal guarantees, this will not necessarily protect lenders,” he said.
P2P lending, while having grown fast globally, has shown other teething problems.
Take the case of the largest player in the United States, namely, Lending Club. It had launched its service as far back as 2007 and become the US’ largest technology initial public offering in 2014, raising around US$1bil.
Lending Club claims that its platform – which enables borrowers to get unsecured loans of US$1,000 to US$35,000 – has now helped originate more than US$16bil in loans.
But then in May 2016, it fired its chief executive officer, Renaud Laplanche, amid questionable lending practices and a conflict of interest in one of Laplanche’s personal investments. Lending Club postponed its annual shareholder meeting in June. Unsurprisingly, Lending Club’s stock price has plummeted and some investors have begun pulling out of the service. Apart from that, a bankruptcy can put investors at risk, as investors receive notes from companies, instead of bonds.
Notes are not usually considered securities and P2P platforms are not responsible for defaults on payments.
“We also understand concerns of cyber threats and cyber risk that will come along.
“The SC has issued a consultation paper on cyber security and we are awaiting feedback from the industry.
“We as an organisation are also working with different Government agencies to address concerns on cyber security,” said the SC’s head of innovation and digital strategy Chin Wei Min in an email to StarBiz.
Chin added that the objective of P2P financing was to address the needs of the micro and SME segment, which is looking for complementary ways to finance its businesses.
“One of the key motivations that drives P2P financing is market needs.
“We are looking for financing methods that are complementary to SMEs and their access to funding.
With the introduction of market-based financing like P2P financing, SMEs and entrepreneurs are able to have greater access to capital markets and raise funding efficiently.
As for individual investors, this will be another avenue for them to invest their savings.