Way forward with alternative funds


By JOY LEE

AS companies work to rebuild their business and restore their reserves, access to capital will be crucial.

While managing their regular operations, companies will also need to gradually invest in research and development, possible diversifications and expansion, and ongoing digitalisation to ensure that their products, services and business models remain competitive in the new normal.

And given that SMEs are now more familiar with digital offerings, peer-to-peer (P2P) lending players believe that alternative funding can play a bigger role in SMEs’ path to rebuild and recover.

“One of the major ripple effects of Covid-19 is the accelerated shift towards digitalisation, as we enforced social and physical distancing measures in this new normal, which translates to an increased appeal in digital financing providers such as P2P financing.

“This presents an incredible opportunity for Funding Societies to reach out to more impacted micro, small and medium enterprises (MSMEs) who were either underserved or unserved, as they become more and more receptive towards digital financing platforms, and as traditional financial institutions further tightened their credit lines due to the economic uncertainty resulting from the pandemic, ” says Funding Societies Malaysia co-founder and chief executive officer Wong Kah Meng.

With more small businesses embracing digitalisation, the platform was able to onboard more SMEs effectively given its digitally driven business model.

Last year, Funding Societies disbursed close to RM300mil. In Malaysia, it has achieved RM650mil disbursement cumulatively.

“This accomplishment was on the back of a very tumultuous year for many businesses alike. With the unpredictable macroeconomic situation last year as the Covid-19 pandemic and the movement control order (MCO) progressed, we are nonetheless very proud of our achievement, as we maintain our market leadership of more than 60% market share in terms of total disbursement, ” adds Wong.

Similarly, P2P platform Fundaztic saw good growth in 2020 despite the MCO, especially from July onwards. By the end of the year, Fundaztic had successfully disbursed over RM100mil to 1,400 SMEs in the country.

Fundaztic chief executive officer Calvin Foo thinks that there is a bigger appetite for alternative funding among SMEs in their efforts to recapitalise and rebuild their business.

“With the P2P financing industry growing and SMEs gaining awareness of alternative funding avenues, I expect more businesses to apply for funding through P2P, especially the underserved segments.

“Furthermore, being a full-fledge digital platform, it allows SMEs more flexibility and convenience. I believe P2P financing will be at the forefront of financial inclusion in the near future, ” says Foo.

Fundaztic aims to push out an additional RM100mil to more than 1,000 new SMEs by the end of 2021.

Although the second MCO has been extended to Feb 4, its impact on SMEs will not be as detrimental compared to last year as many businesses would have learned to adapt to the new normal and would have pivoted their business digitally.

And with the arrival of vaccines, Foo expects a quicker recovery in 2021.

“With P2P financing being a digital business, this serves a big opportunity to more and more businesses that are moving online which allows platforms such as Fundaztic, to reach and serve them better in a dash, ” he says.

Good profile

Platforms have noted a growing interest from investors in P2P, which will further boost the profile of alternative funding.

Funding Societies has surpassed more than 50,000 registered investors on the platform.

Apart from the heightened awareness on digital investing, Wong says its growing investor base can also be attributed to an increased correlation across traditional asset classes, such as stocks and bonds, which in turn calls for greater need for investment diversification beyond those asset classes.

“Besides having a low minimum investment amount of RM100, our diversity of financing products that are able to cater to investors with different risk appetites also serve to catapult us as a preferred digital investment platform, ” he adds.

Foo says about 5% of Fundaztic’s investors stopped investing during the MCO lockdown last year, likely on concerns for their portfolio health resulting from economic uncertainties.

Since then, the platform has worked to lower its default rate and around 40% of those who stopped investing have started re-investing as of December 2020.

Foo also notices a rise in women investors on the platform with a slight increase of 2% from the first MCO till now.

“We have been operating for three years as of June 2020 and with the majority of our investment note tenures averaging between two and three years, the platform has gone through a full credit-cycle.

“We are showing commendable performance through our default rate of below 3% per annum. This clearly demonstrates the strength of Fundaztic’s credit model and team, which gives us the confidence to grow our team despite the pandemic.

“Our investors are yielding between an average of 8% to 11% to date.

“Fundaztic’s focus has never deviated from helping small underserved businesses and I believe this is very important now as more businesses need funding help through the pandemic, ” explains Foo.

The company has been hiring aggressively to serve even more SMEs.

He points out that the P2P industry is barely scratching the surface in terms of covering the overall underserved SME market. Educating more investors on the viability of P2P as an alternative investment will also be key to growing the industry.

Under Budget 2021, the government has allocated RM50mil to support P2P via the Malaysia Co-Investment Fund (MyCIF), whereby MyCIF will invest RM1 for every RM4 invested by private investors.

Funding Societies’ Wong also points out that strategic partnerships with various industry players will also enable the platform to tap on a wider pool of MSMEs to offer them tailored financing solutions.

“While we continue to assist SMEs during this period, we have also proactively reviewed our credit policies to mitigate credit risk.

“As the pandemic evolved the way businesses and consumers behave, we believe that digitalisation is ultimately the way to go in this new normal, and to this end, we look to serve more creditworthy MSMEs, particularly those that are too small for financial institutions to serve profitably, ” says Wong.

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