Peer lending for small businesses

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  • Monday, 18 Sep 2017

For a Silicon Valley startup, yellow peas are milk’s future

WONG Kah Meng (pic), chief executive officer of Funding Societies, is driven to make an impact where it matters most – to provide financing to more SMEs.

Funding Societies, which started in Singapore in 2015, is one of the first peer-to-peer (P2P) financing companies to open its doors here in Malaysia in February this year. It is also present in Indonesia.

Wong says P2P is well-suited for the Malaysian and South-East Asian markets where there is a big gap in SME financing. He estimates financing needs for small businesses in Malaysia to be at RM80bil.

“P2P financing is a regulated activity across Malaysia, Singapore and Indonesia, where SMEs and investors are protected from unscrupulous individuals or companies,” he says.

P2P financing is an online marketplace connecting credit-worthy SMEs with everyday individuals who want to earn better risk-adjusted returns compared to traditional investment options like fixed deposits, mutual funds and stocks. Through this, SMEs are able to gain access to fast and collateral-free financing to expand their business or meet short-term cashflow needs.

Also known as debt crowd funding, P2P financing is well established in markets such as the US, UK and China.

According to Research and Markets, the global P2P lending market was valued at US$26bil in 2015 and is projected to reach US$460bil by 2022, growing at a compound annual growth rate of 51.5% from 2016 to 2022.

In Malaysia, P2P is relatively new, which warrants a need for market education and awareness to gain the trust of SMEs looking to apply for financing through the platform.

“Some SMEs thought we were unlicensed money lenders and some thought we were a money game or Ponzi scheme. But we were not deterred by those perceptions. We aim to be the most trusted P2P financing platform in South-East Asia and we are committed to help fund worthy SMEs to achieve their full potential and enable investors to grow their wealth,” says the 31-year-old.

Funding Societies is recognised and regulated by Securities Commission Malaysia, to provide financing to SMEs. The company also provides flexible investment opportunities with rigorous risk assessment and returns of up to 14% per year for investors, says Wong.

“This P2P financing also encourages more people to start investing in businesses and is expected to revolutionise Malaysia’s investment landscape in the digital age. This alternative funding is proven to be a safer avenue for investment,” he claims.

Applications by SMEs that seek funding on the platform will be vetted through by Funding Societies. Due diligence will be carried out before they are allowed to raise funds on the platform.

“We also manage crowd funding processes, disbursement of funds to SMEs, repayments from SMEs to investors and facilitate collection processes and legal action against uncooperative SMEs,” he says.

Funding Societies’ staff consists of ex-bankers with more than 20 years of experience working with leading SME-focused banks.

So far, the company has done more than 800 deals and disbursed more than RM180mil in financing to SMEs in Malaysia, Singapore and Indonesia.

Default rate in the region is low at about 2%.

“With SC’s approval, investors need not worry about investing in P2P financing. Our initial challenge was more of trying to reach out to SMEs and investors, educate them and build their confidence in the concept of P2P financing,” he says.

There is no specific criterion to apply for P2P financing. Funding Societies has served young companies with strong growth potential and mature companies, which require short-term financing. However, priority is given to SMEs or start-ups with established revenue streams and good growth potential in order to ensure that they are able to meet their repayment obligations.

“We do not target an industry. We assist any SME business that need funding to start their business as we believe the P2P financing platform offers excellent investment opportunities into SMEs of various sizes across key industries,” he says.

Through P2P, Wong says SMEs will be able to obtain short-term financing to grow their business without the need for collateral. They only need to fill in a simple 10-minute online application form and the Funding Societies’ team would do the rest.

“We propose alternative financing solutions through term financing or invoice financing. We also assess the repayment capability of the SME through CTOS and CCRIS checks and study their business model and legitimacy of the business through site visits and interviews,” he says.

Funding Societies also takes personal guarantee from directors and shareholders and have the flexibility to pursue collection efforts and litigation for uncooperative SMEs. They have also partnered with CTOS.

Investors are welcome to invest from as low as RM100 and are able to gain exposure to a large number of SMEs with a small investment amount, which could potentially earn them double-digit returns, he says.

So far, the industries that have tapped on Funding Societies’ platform for financing in Malaysia are manufacturing, wholesale and retail trading, professional services and food and beverage.

“We want to connect with more SMEs and organise educational events for them every month. We expect to provide financing to more SMEs, which is safe for investors and concurrently allow more investors to earn better returns,” says Wong.

Funding Societies, which is backed by venture capital firms such as Sequoia India and Alpha JWC, intends to look into micro financing next.

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