The Malaysian investment management industry has evolved over the years amid the rise of alternative financing, innovative digital enterprises and changing consumer demographics.
So, far from the days of plain vanilla investments, there are now dozens of new products from which Malaysian investors can choose.
For instance, other than bank deposits, stocks, unit trusts and insurance products, they can now put their money in contemporary products such as equity crowdfunding (ECF) and peer-to-peer (P2P) lending platforms that could potentially generate higher returns, albeit the higher risks that come with them.
The challenge for consumers, therefore, is knowing how to manage their finances and make wise investment choices. And that requires some financial knowledge and skills.
With the tabling of Budget 2020 less than two weeks away, groups in the investment community share their expectations with StarBizWeek, and talk about the potential measures that could support the role they play in the economy and in the investment marketplace.
Below are their comments:
Pitch Platforms Sdn Bhd (pitchIN) co-founder and chief strategy officer Kashminder Singh:
ECF has become an important funding channel for small and medium enterprises (SMEs) and start-ups. Over 60 companies have raised funds through ECF.
These companies will become the drivers of Malaysia’s economy as they grow.
While the ECF industry is growing well and investors have come in to invest into these companies, we are only touching the tip of the iceberg here. There are nearly one million SMEs in Malaysia.
We are seeing a rapid increase in viable businesses seeking to raise capital for their next stage of growth. The number of investors needs to grow in tandem.
We believe the nation can benefit by giving tax incentives to Malaysians who put their money into companies at the time they need it most.
Hence, we would like to see tax incentives announced for all ECF investors.
As ECF investments are long-term investments, these tax incentives can kick in about two to three years after the investment date, and only if the investor has held on to the investment.
The benefits will be immense as more jobs will be created and the ECF issuers will also contribute to the country’s gross domestic product (GDP).
Also, last year the government announced RM50mil co-investment fund (CIF) for ECF and peer-to-peer (P2P) lending. This was a very welcomed step, as it has helped get more companies reach their funding target.
However, RM50mil will only go so far.
We would like to see a larger allocation for Budget 2020, say, RM100mil, for the CIF.
I must stress that this is not money that will go down the drain.
Over time, the government will also reap returns, as the companies it co-invests in will bring handsome returns in the mid to long-term period.
Funding Societies Malaysia co-founder and CEO Wong Kah Meng:
SMEs, which are the backbone of Malaysia’s economy, face a significant funding gap of RM80bil. As an alternative financing platform, we do realise that we are, in fact, just scratching the surface in terms of enabling greater access to financing for SMEs.
As a supportive measure to further reduce the gap, we hope there could be a higher allocation for the co-investment fund (as compared to the RM50mil announced in Budget 2019) as a testament of the government’s continuous support for alternative financing.
Other welcomed measures include subsidy on interest costs and stamp duty for SMEs. This can help lower the financing cost for SMEs, and, consequently the risk for investors.
We advocate tax exemptions for investors on interests earned from investing in P2P. This is to further encourage their participation in the local capital market, and drive access to financing for underserved SMEs.
Collaboration is key, particularly when it comes to public-private partnership.
Such partnership can be enhanced with measures like government-mandated bank referral scheme that includes referral of unbankable SMEs in need of financing; and joint-educational programmes to promote awareness of alternative financing solutions.
Peoplender Sdn Bhd (Fundaztic) CEO Kristine Ng:
In a short two years since going live, the P2P industry has proven to be a very strong alternative to funding for micro SMEs (MSMEs), with a cumulative funding of RM377.2mil being disbursed to 1,139 businesses.
Based on this run-rate, cumulative funding by P2P could easily hit RM700mil by the end of 2019.
Nevertheless, the industry’s growth can be further accelerated through strategic incentives and expansion of co-investment fund as part of Budget 2020.
Under Budget 2019, the government allocated RM50mil into the fund for investing into both P2P and ECF projects.
We hope that the fund will continue for Budget 2020, and the allocation will be increased to RM100mil, given the fact that there is an increasing number of platforms joining the industry to serve different segments of MSMEs.
We hope the government could introduce measures to lower the borrowing costs for MSMEs seeking P2P financing.
In this aspect, I am referring to the waiver of stamp duty, which will greatly assist the MSMEs, as this potentially mean up to one month of savings on interest cost.
Access to funding via P2P is facilitated only by the platforms.
The real party driving the access are investors, 90% of whom are retail investors.
To further encourage and inculcate the behaviour of continuous investments into MSMEs, which form the backbone of the country’s economy, we hope that the current tax deduction scheme for donations to approved bodies (where individuals can claim a tax deduction of up to 7%, while companies can claim up to 10% of tax deduction) can be widened to include P2P investments.
This is because P2P is an altruistic form of investment as part of joint-social responsibility.
The allocated relief can be expanded to cover interest earned during the tax period up to the limit presently set.
Presently, when MSMEs need funds, they would still first approach traditional lenders such as banks.
So, we hope some simple policy to be introduced, whereby all rejected applicants of business financing will include alternative platforms for the unsuccessful applicants to consider before they think about seeking funds from “shadow-bankers” out of not being aware or knowing of alternative avenues.
StashAway Malaysia Sdn Bhd country manager Wong Wai Ken:
As the government is focused on debt reduction and maximising the impact of a narrow tax base, we believe robo-advisors are part of the solution to ensuring the rakyat’ self-sufficiency.
It has been a year since StashAway, the first robo-advisor was launched in Malaysia.
While it is still early days, the concept of digital investment managers is gaining public acceptance.
Investment fees are under pressure, as the rakyat deserves affordable avenues to invest for their future.
The Employees Provident Fund’s (EPF) newly launched i-Invest, for instance, has slashed sales charges from 3% to 0.5% or even 0%.
We hope EPF members would be able to transfer a portion of their savings for investment through a digital investment manager such as StashAway through EPF-Members Investment Scheme (EPF-MIS).
The value that robo-advisors bring to investors’ savings for their retirement is clear. By reducing investment costs while making it convenient, we enable investors to grow and protect their retirement funds.
ISLAMIC ASSET MANAGEMENT BIMB
Investment Management Bhd CEO Najmuddin Mohd Lutfi:
The tax incentive for fund management companies managing Islamic funds will end in 2020.
This tax incentive was introduced as part of the Malaysia International Islamic Financial Centre’s (MIFC) initiatives to make Malaysia the world’s Islamic Finance marketplace.
Since the introduction of the incentive, 11 foreign/global fund houses have established their presence in Malaysia, providing breadth and depth of Islamic funds and deepening the Islamic capital market and also creating job opportunities for Malaysians.
Government support on Islamic fund management companies is crucial for the long term and sustainable growth of the industry.
Separately, we hope to see alternative assets such as leasing and financing being recognised as securities for Islamic fund management companies so that they can expand its product offerings and introduce new Islamic asset classes to investors.
Currently, Islamic fund management companies can only offer transferable securities, which include equities and sukuk; liquid assets such as deposits; and money market assets, units or shares in collective investment schemes as well as derivatives.
For Islamic fund management companies to be competitive, they need to be able to offer alternative asset classes with different risk/reward profile.
We hope there would be incentives to encourage e-wallet or e-payment platform to collaborate with Islamic fund management companies to offer micro investment schemes to the under-served Bottom-40 households, who represent the lowest-earning group in Malaysia.
We also hope there would be a specific fund allocation by the Government and pension funds for syariah environmental, social and governance (ESG) and sustainable investing to encourage Islamic fund management companies to build capabilities in sustainability investing and offering of shariah ESG investment products across asset classes, domestically and internationally.
On the Private Retirement Scheme (PRS) space, we hope to see an opening for syariah ESG and sustainable investing fund managers to participate as PRS providers.
In addition, we hope the previous incentive to encourage those under 25 to invest be restored, especially for those who invest Islamic PRS funds.
Excellentte Consultancy Sdn Bhd financial planner Jeremy Tan:
It is a known fact that financial literacy among Malaysian need to be improved.
Many need to be equipped in the knowledge of and enhancement of their financial planning skills. These will make them more prepared to cope with an economic shock or face retirement in the future.
The government has put in place various initiatives to address the issue such as the recent launch of the National Strategy for Financial Literacy 2019-2023.
That aside, one has to acknowledge that the financial planning industry also plays an important role in helping further improve the financial literacy of Malaysians, and guide them to be wise decision-makers, especially in terms of risk management; wealth creation and accumulation; retirement planning; and leaving behind a legacy.
Hence, we hope there could be measures to promote the growth of the industry.
For instance, the Government could consider providing individuals with tax relief, or better rebates, on fees paid for engaging the services of financial planners or advisers. That could encourage more individuals to seek professional advice in helping them achieve financial well-being.