THERE is growing interest among consumers to invest in the growth of SMEs following increased awareness of platforms for them to do so, says Peoplender Sdn Bhd chief executive officer Kristine Ng.
Peoplender owns and operates peer-to-peer (P2P) lending platform Fundaztic, which allows small businesses to borrow funds from a larger group of unrelated investors to gain the capital they need for expansion.
Fundaztic is one of six P2P financing platforms licensed by the Securities Commission Malaysia (SC).
To-date, Fundaztic has reached over 3,400 members and helped raise RM5.2mil. Ng says Fundaztic is set to hit RM40mil by the end of 2018 and expects to triple that amount next year.
According to Ng, the registration process for companies seeking funding on Fundaztic is simple. The criteria for these businesses are that they fall within the SME category and are registered with the Companies Commission of Malaysia (SSM).
“Everything can be done online for the SMEs. Once they have scanned or uploaded screenshots of documents needed, we will be able to pull their credit reports instantaneously from the credit bureau and they will get a notification as to whether their application is successful or not.
“Even if they fail, maybe due to technical issues, we will do a second round of evaluation to make sure that failure is indeed a failure and vice versa. We also evaluate to see if they are over-geared, or if they are good paymasters and who are in their teams.
“Likewise, for investors, everything will be done online. By providing a seamless process where everything is automated and online, we are more transparent, fairer, faster and easier,” she says.
Fundaztic mainly takes on micro-SMEs and start-ups as they make up 80% of the SME segment but are generally underserved by the banking system.
Ng notes that the simplicity of its processes has helped Fundaztic grow quickly.
“Our platform has a high degree of transparency to encourage people to look and browse through,” she says.
The SME sector has been enjoying strong growth over the past few years. Reports note that the growth of SMEs at over 6% per annum, outpaces the growth of the general economy at over 5%.
P2P platforms make a good avenue for people to participate in the growth of SMEs, notes Ng, apart from giving small businesses an alternative avenue to raise financing.
The effective rates for each note ranges from 12% to 23% per annum.
Ng is keen to bring in more institutional investors to the platform to take up portions of the issuer notes that are not taken up by retail investors. This will help ensure SMEs are successfully funded.
Fundaztic may also bring in foreign investors in the future when the platform starts introducing larger ticket issuers.
The maximum amount that an issuer note can raise currently is RM200,000.
“The performance we have seen so far is that the fundraising is very people-powered. On average, each note is taken up by about 120 people.
“I think this is a healthy combination because we don’t have just one individual or organisation hogging up the funding and it also reduces the risk on the investor,” she says.
Should there be a default by an issuer, Peoplender will pursue recovery from the issuers, and if recovery is successful, the funds will be returned to the investors.
But payments have been prompt so far, she says.
Lending terms on Fundaztic are generally longer, ranging from 24 to 36 months, to avoid putting a toll on SMEs’ cashflow.
“We need to protect our credibility as a platform. That is why we need to manage the quality of notes that we host,” she says.
Ng advises investors to diversify their portfolio by investing small amounts in many companies.
The challenge for platforms such as Fundaztic is always to raise awareness among SMEs and investors as P2P is fairly new in the country. Ng notes that about half of its members are investing on the platform only because they are “following their friends”.
Surprisingly, even high-networth investors are not fully aware about how P2P lending really works.
“But they do eventually know what they are doing on the platform. So this ‘follow friends’ does work as an education for them,” she says.
Trust and acceptance are also issues that need to be addressed to put investors’ and SMEs’ minds at ease when using the platform, Ng adds.
In this respect, Fundaztic tries its best to comply with SC’s guidelines and to gather feedback from its members to adapt.
Ng says the platform is also continuously innovating its processes to make it faster and easier for investors. Some of these efforts include allowing automatic fund management for new notes based on a pre-set criteria.
The platform will also look into introducing other products in the future such as invoice financing, funding for bigger-ticket items and franchise financing.
It will also include other features into its system such as different payment options and gamification to make investing less daunting to the regular consumer.