ALTHOUGH companies are racing to shore up cash as revenues plunge, peer-to-peer (P2P) lending platforms are seeing a decline in financing deals.
Deals on Fundaztic dropped from 10-12 notes per week prior to the movement control order (MCO) to about 4-6 notes currently.
Chief executive officer Kristine Ng says enhanced due diligence and the rollout of the stimulus packages are among the reasons for the dip in funding notes.
“Our credit team is taking a more thorough approach to understand their needs of immediate funds and to do so, they might ask more questions or require additional documents which result in a longer time for the SMEs to revert since movement is restricted and they might not readily have the required documents.
“Therefore, we have to hold back the hosting of the particular note even though it passes all the credit criteria because it defeats the purpose of hosting, getting it fully funded and yet not be able to disburse the funds because of non-compliance of documentation requirements, ” she says.
Ng also observes that many SMES are trying other funding avenues before turning to P2P given the availability of new facilities under the government’s stimulus packages.
For example, the Special Relief Fund (SRF) presents an attractive option as it addresses the cash flow needs as well as low-cost funding needs of the SMEs.
Likewise, Funding Societies has also seen a decline in funding for April as travel limitations have made it more difficult to reach out to SMEs.
“There have also been changes in our risk assessment to focus on SMEs within the defensive and counter-cyclical industries to protect investors. With the uncertainty surrounding the current macroeconomic environment, we are now focusing on shorter-tenured financing to mitigate the risk of business viability over longer horizons.
“The drop in funding is also a result of the exposure control that we set by limiting the total financing amount an issuer can get based on how their businesses are impacted by the pandemic, ” says Funding Societies co-founder and chief executive officer Wong Kah Meng.
Nonetheless, he thinks that demand for P2P financing will increase after the MCO is lifted as the economy gradually recovers. Businesses would then have a better sense of the macroeconomic environment from a business investment and consumer spending perspective.
Wong says the platform continues to engage with regulators and government agencies to help fund and support SMEs within negatively impacted sectors to help them tide through these challenging times.
“Despite the availability of an SME-focused stimulus package, there are many SMEs who may not be able to benefit. For example, the majority of SMEs we serve do not have existing financing facilities from banks and hence may be unable to benefit from the SRF given out by banks, ” he says.
Meanwhile, B2B Finpal says there is a reduction of financing requests from issuers in the non-essential services on its platform as many of them are not operating during this period.
“But generally, the request for funding on our platform has remained stable in April and we do not foresee any significant drop as the majority of our issuers are from the fast-moving consumer goods (FMCG) industry and most of them are still operating during the MCO period, ” says Finpal.
The platform expects non-essential services SMEs to return after the MCO as many of them may not meet the banks’ criteria and will need short-term financing to restart their business.
Finpal has also launched its Covid19 Relief Financing to help SMEs that did not get the SRF. Under this programme, issuers may raise up to RM150,000 and will not need to start repayments for the first six months. The funds will be disbursed within three days.
“P2P platforms will have a bigger role to play in supporting SMEs in this serious downturn as a key source of alternative funding and the speed of approval and disbursement is critical to help SMEs.
We operate in a market that is not the key focus of banks which is for loans in the range of RM50,000 to RM200,000.
“On top of that, most of the bank facilities are collateralised versus P2P financing which is non-collateralised and based on data analytics, ” it adds.
Ng concurs, noting that P2P remains relevant as SMEs face the challenge of getting access to funding.
For Fundaztic, companies can receive a conditional approval or rejection within 10 minutes of completing their applications. If all goes well, the funds can be raised within two-three days.
“This is a major and meaningful difference between us and the financial institutions. Many of the SMEs are tight on funds now, and the timeliness of funds received is of utmost importance.
“We strongly believe that by continuing to enhance our technology, being agile and by coming up with relevant products quickly, we will be able to close the gaps of funding.
"Fundaztic is fully online, which is even more relevant and important under the restrictions of MCO and even after that as social distancing and moving things online become part of the new normal, ” she says.
Wong adds that P2P can be another effective channel for government aid to reach businesses.
“As we focus on serving micro and small SMEs, which are most impacted and the majority of which do not have existing financing from banks, P2P financing platforms are the most effective channel through which the government can reach out to and support these SMEs, and this is consistent with trends in the US and UK, whereby governments are channeling funding to SMEs through Fintech and P2P financing platforms.
“Over the medium and longer term, we are hopeful that this blackswan event would spur the next wave of digitalisation of businesses across the economy as well as the emergence of new digital business models, which will benefit the P2P financing industry given its digital focus, ” Wong concludes.
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