PETALING JAYA: Technology-driven peer-to-peer (P2P) lending is becoming a popular investment choice among young investors, but the anticipated slowdown in the economy this year also raises the risk of losing money.
To protect their investment, a P2P financing platform operator said that investors should spread their investment into as many deals as possible.
“Diversification means distributing your funds across multiple investment opportunities,” Funding Societies Malaysia CEO Wong Kah Meng said.
“In general, the more diversified your investment portfolio of P2P financing is, the less likely you are to experience large losses to your investments,” he said in a statement.
Wong runs Malaysia’s first and biggest P2P financing platform, which also has a growing presence in Singapore and Indonesia through Modalku. Both Funding Societies and Modalku have reached a total of more than RM1.15bil in disbursed working capital to small and medium enterprises (SMEs) in South-East Asia since it was established in 2015.
“By investing into SMEs, investors can earn risk-adjusted returns greater than fixed deposits, bonds and other traditional investment instruments,” Wong said.
It was reported late last year that Funding Societies saw its first default.
Wong said in the statement that the processes put in place by Funding Societies Malaysia have been effective in minimising the impact of defaults, given that the P2P financing platform has only posted a default rate of less than 1%.
“While investors in P2P financing must be prepared to accept the risk of default by the investment note issuers, they can be rest assured that platform operators are doing their utmost best to prevent such incidents from occurring in the first place,” he said.
Among these include stringent credit assessments and proactive debt recovery processes to minimise the risk of defaults and potential losses.
“Our priority would be to strike a balance between minimising the loss to investors and providing constructive solutions to SMEs, thus enabling them to better manage their finances to meet their repayment obligations,” Wong said.
In order to simplify the investing process, Funding Societies has pioneered an auto allocation feature, where investors can set their investment parameter that would be automatically invested into notes that fit those parameters.
“This technology-driven solution has helped many investors to easily create a hassle-free and diversified portfolio,” Wong said.
Currently, there are more than 20,000 registered investors with Funding Societies Malaysia. Of this total, 70% are millennials, which highlights the interest of the younger generation in P2P financing as an investment option.