Updated on 18 March 2022.
Peer to peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. This article will be going in-depth about the trend of P2P lending in Malaysia and how it has impacted businesses and their workings.
This method allows borrowers to obtain loans without having to go through the strict requirements of banks. Considering that the primary objective of introducing market-based financing is to help build small businesses which in turn help to spur and promote the growth of the economy.
Hence the P2P operator is not permitted to facilitate individuals seeking personal financing. Through the SC registered P2P platform, an investor may invest in an investment note or an Islamic investment note issued by businesses or companies for a specified tenure with the expectation of a predetermined financial return.
Peer-to-peer lending works differently than getting a loan from a bank or credit union. When you get a loan from the bank, the bank will use some of its assets, which are the deposits made into accounts by other customers, to fund the loan.
With peer-to-peer lending, borrowers are matched directly with investors through a lending platform. Investors get to see and select exactly which loans they want to fund. Peer-to-peer loans are most commonly personal loans or small business loans.
P2P lending websites connect borrowers directly to investors. Each website sets the rates and the terms and enables the transaction. Most platforms and websites will have a wide range of interest rates based on the creditworthiness of the applicant.
First, an investor opens an account with the website and deposits a sum of money to be sent out in loans. The loan applicant posts a financial profile that is assigned a risk category that determines the interest rate the applicant will pay. The loan applicant can review offers and accept one. The money transfer and the monthly payments are handled through the platform. The process can be entirely automated, or lenders and borrowers can choose to have a Q&A over interests rates and loan terms and conditions.
P2P lending can also be compared with loans obtained from banks. There are two perspectives to visualise P2P lending, from the lender's perspective as well as the borrowers. The image below depicts the lenders’ perspective.
In the working of Peer to Peer lending Malaysia, the process for investing through a P2P platform may differ from operator to operator depending on the rules set by the operators. From a borrowers’ perspective, the scenario differs as follows:
The concept of Peer to Peer lending in Malaysia was introduced in the country in May 2016 after the approval of the Securities Commission (SC) Malaysia. They introduced a regulatory framework for Peer to Peer lending Malaysia, setting out requirements for registration and obligations to be a P2P operator as provided in the revised Guidelines on Recognized Markets (the Guidelines) in 2016.
The P2P framework will enable eligible businesses and companies to access market-based financing to fund their projects or businesses via an electronic platform.
There are multiple platforms in the country that support Peer to Peer lending in Malaysia. They compare as follows below:
|Name||Default Rate||Minimum Investment||Fees|
|AlixCo||2.59%||RM500||0.35% -2% of repayment|
|B2B Finpal||3.15%||RM1,000 initial deposit,|
RM100 per campaign
|30% of interest earned|
|CapitalBay P2P Financing platform||0%||RM10,000||10% to 30% of interest earned|
|Capsphere||0%||RM200 initial deposit,|
RM50 per campaign
|Up to 2% of monthly repayments|
|Cofundr||not stated||RM1,000 initial deposit,|
RM100 per campaign
|For investments that are 12 months or under: 20% of interest|
For investments that are over 12 months: 2.0% p.a. on the principal
|MicroLEAP||not stated||RM50||2% of the first monthly repayment of each campaign|
|Funding Societies||3.58%||RM1,000 initial deposit,|
RM100 per campaign
|Business term financing: 2% p.a. of each repayment|
Accounts receivable financing: 15% of interest earned
Accounts payable financing: 30% of interest earned
|Fundaztic||10.42%||RM2,000 initial deposit (if using “Smart Invest” feature);|
otherwise, no initial deposit is required, RM50 per campaign
|Monthly repayments: 2% of the repayment amount|
Bullet repayments: 1% of the repayment amount
|QuicKash||1.34%||RM100||1.35% – 1.50% per repayment|
It’s best to choose P2P platforms that are reputable. As of 2018, Funding Societies, B2B Finpal and Fundaztic had the biggest market shares in Malaysia. Funding Societies takes the lead with over RM4.97 billion funds raised to date.
These are the following strategies that are used to minimise risk while at the same time being able to maximise your returns.
Using P2P lending in Malaysia has its advantages and disadvantages as well. The advantages of P2P lending Malaysia include:
The drawbacks of using P2P lending Malaysia include the following:
P2P lending Malaysia is regulated by the Securities Commission Malaysia (SC). Before you start investing in a P2P lending platform, check if it has been licensed under the SC. Malaysia became the first country in ASEAN to regulate P2P lending. To date, there are only eleven licensed operators licensed for P2P lending in Malaysia.
Other types of high-risk investment options as an alternative to P2P Lending Malaysia, include investing in the stock market. Market risk is a type of systematic risk that may cause investors to suffer losses due to the factors affecting the financial market’s overall performances, such as stock market changes, recession and other external economic factors may be of cause as well.
There are strict guidelines on who these platforms can offer loans to. SC-licensed platforms are required to conduct background checks on all potential issuers to verify their business proposition and assess their creditworthiness. P2P platforms reject around 70% of potential issuers.
Just like the teaching of Sun Tzu, “To Know One’s Own Strength And The Enemies Is The Sure Way To Victory”. Thus, maximum and continuous profits come from well versed with the market, planning and strategising options to minimise risk for your wealth and business in a well-balanced manner.
In conclusion, P2P lending Malaysia has been growing at an exponential pace since its emergence and approval to regulate in 2016. The most obvious reason is because of its promising high returns with more than 10% per annum. Also, it doesn’t require specialised financial knowledge or day-to-day monitoring. Not to also mention it requires only RM100 to start investing.
Read more on our P2P Insights here.