YearStarter2019: Rise of P2P financing

P2P platforms in Malaysia have opened up opportunities for small businesses to get loans from many investors rather than depending singularly on banks.

Peer-to-peer (P2P) financing, which allows individuals and companies to borrow and lend money via an online platform, is ready for its next big step.

Fundaztic chief executive officer Kristine Ng Wri Miem says P2P platforms are looking to form a secondary market where customers can resell their P2P loans, offering them more flexibility.

Anyone can choose to finance a company that is seeking a loan from P2P platforms such as Fundaztic – the company seeking the loan is called the issuer and the “stake” the customer buys in a loan is called a note.

Instead of requiring a single entity like a bank to fund a loan, P2P lets many people buy notes, making it easier for companies to get loans.

Customers also don’t have to put all their eggs in one basket, as they can buy notes from multiple issuers. Fundaztic allows issuers to raise between RM20,000 and RM200,000, and gives three to 36 months to settle the debt.

Ng says the average period is 30 months which puts off some customers who want faster returns, so a secondary market will give customers the option for an early exit.

This will also encourage more people to invest as they know they have can choose to liquidate their stakes faster if they need the money urgently.

“A secondary market needs a vibrant ecosystem with a few hundred notes in circulation, something we thought could only be done after two years at least. However, we’ve hit more than 400 notes so far,” Ng says.

According to preliminary crowdfunding statistics, as of October last year, P2P platforms ran 1,958 successful campaigns for 497 companies, raising RM159.56mil this year.

Despite the rapid growth, regulations set by the Securities Commission (SC) has helped keep the industry in check on who it should offer loans too.

P2P platforms reject about 70% of potential issuers – usually those that fail to meet SC guidelines – and have kept default rates under 2%.

There are five other platforms operating in Malaysia that were appointed by the SC in 2016 – Modalku Ventures (Funding Societies Malaysia), B2B FinPAL, Kapital, FundedByMe Malaysia and ManagePay Services.

However, not all platforms feel there is an immediate need for a secondary market – Funding Societies Malaysia CEO Wong Kah Meng says the company will instead focus on providing new micro financing products for mobile, as it does most of its business via its app.

The success of P2P platforms has also attracted the government’s attention – in Budget 2019, it was announced that a co-investment fund will be set up and it would be used to invest in equity crowdfunding and P2P financing.

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