P2P Lending Malaysia: Complete Guide for Beginners in 2020

P2P Lending Malaysia

What is P2P lending Malaysia? Peer-to-peer lending, otherwise known as P2P lending or financing is a relatively new concept in Malaysia and the government has taken progressive steps to regulate the industry with the Securities Commission announcing the regulatory framework for P2P financing back in 2016 and the official approval of P2P financing platforms (a.k.a. Recognized Market Operators) later in the year.

This has provided an alternative avenue for investors to seek higher-than normal banks’ fixed deposit returns in an increasingly challenging and inflationary economy.

What is P2P lending?

P2P lending in the Malaysian context refers to the opportunity for retail investors like you and me to pool together their money and invest in small-to-medium enterprises (SMEs) and businesses in Malaysia which are in need of cash for their daily operations.

These cash are typically used for working capital or invoice financing.

Traditionally these businesses can only obtain financing via banks, which pose a hurdle as banks typically require some sort of collateral or at least a proven track-record. This means that new or small enterprises often encounter difficulties to obtain funds to sustain their operations or to expand their business.

SMEs as a group is a major engine of growth for the Malaysian economy and this obstacle to financing has been a major inhibitor to their growth. It was calculated that there is a RM80 billion gap in financing that has not been met. Thus, it is hoped that P2P lending can help fill that gap.

Worldwide, P2P as an alternative form of financing is fast becoming a proven alternative, given that the global P2P financing market was valued at US$38 billion in 2018. That figure is projected to grow to about US$589 billion by 2025 with CAGR of over 50%

P2P financing operators act as platforms where companies can get access to funds directly from investors, resulting in a shorter turnaround time. All these are done online which means lower costs compared to traditional banks.

From another perspective, investors act as ‘banks’ that provide financing for these companies. In return, they earn a higher return on their investments compared to traditional fixed deposits.

Is P2P lending in Malaysia safe?

The main risk involved in P2P lending is the default risk whereby the company is unable to repay the financing. In the unfortunate event of default, investors only lose whatever amount they put into the particular investment.

Another risk event would be the shutting down of the P2P financing platforms, which is highly unlikely given that the platforms themselves are only acting as third party enablers that provide the underlying technology for the lending activities.

Investors funds are held in trustee companies, meaning the money by investors are held separately from the P2P operators’ own bank accounts.

Who are the P2P Platform Operators in Malaysia?

As of 2020, there are currently 11 official P2P platforms in Malaysia, categorised under Peer-to-Peer Financing in the Recognised Market Operators (RMO) list by Securities Commission Malaysia. The top 3 P2P lending platform in Malaysia that I’m still using are as follows:

Funding Societies

Operator: Modalku Ventures Sdn Bhd

Funding Societies is the largest P2P financing operator in Malaysia. They offer business term, accounts payable and accounts receivable financing.

B2B Finpal

Operator: B2B Finpal Sdn Bhd

B2B Finpal’s issuers are suppliers and businesses that provide goods and services to other businesses (hence the word B2B).

Fundaztic

Operator: Peoplender Sdn Bhd

Fundaztic is also one of the earliest P2P platforms in Malaysia. They offer multiple types of business financing and has strategic partnerships with many local corporates, so their investment opportunities are quite unique and attractive.

Other P2P Platforms

I’ve yet to explore the following P2P, so can’t say much about them.

Why invest in P2P financing?

P2P is a great alternative avenue for investment. Let’s look at some of the advantages below:

Higher returns compared to fixed deposits

Investors get potentially higher return. Most of the investment notes offer rates higher than 5%.

Choose who you want to lend to

Before you part with your hard-earned money, you can check the company’s profile, sales and revenue figures as well as their plans for the purported loan.

Low Initial Starting Capital

You can start with as little as RM50. Most of the platforms allow miminum investments as low as RM100.

Compound Your Investment Returns

Reinvest your returns into new investment notes and compound your returns over the long run. Most of the P2P platforms offer auto-investing features based on preset conditions, which means you can essentially park your money into your account, set up the auto-investment feature and let your money compound itself without having to lift a finger.

P2P Lending Malaysia – A Solid Alternative Investment Avenue

P2P lending Malaysia is here to stay and the industry will only get exponentially bigger as more people accept it.

I sincerely hope you find this article useful. Do check out my other articles in which I review the different P2P platforms.