P2P players move to limit investors’ risk via new product offerings

Malaysia’s P2P market has grown leaps and bounds since its services were first launched 2 years ago

By MARK RAO / Pic By TMR File

GROWING investments and default risks are prompting Malaysian peer-to-peer (P2P) financing platforms to compete to provide protection and safeguards to prospective investors.

The P2P market, which provides an alternative and online avenue for companies looking to raise funds from retail and sophisticated investors, grew leaps and bounds in Malaysia since its services were first launched some two years ago in the country.

As of June this year, P2P financing raised RM377.16 million of funds in Malaysia, with 4,438 successful campaigns and 1,139 successful issuers, according to statistics from the Securities Commission Malaysia (SC).

While still at the nascent stage in Malaysia, the P2P industry globally is experiencing a fair share of defaults, write-offs and platform closures, according to Peoplender Sdn Bhd’s Fundaztic — one of Malaysia’s leading P2P platforms.

Funding Societies Malaysia, the country’s first and largest P2P player, saw default rates on its platform increase from 0.53% in the first quarter of 2019 (1Q19) to 1.27% in 3Q19, according to the company’s website.

The growing risk level saw local P2P players acting quickly to provide lower-risk investment opportunities, and thus give more value via these safeguards to prospective investors.

Last week, Funding Societies launched Malaysia’s first collateralised P2P investment via Dealer Financing — an investment platform for identified used-car dealers to raise funds to purchase used automobiles.

For investors, Dealer Financing is backed by an additional security, namely ownership claim on the financed used cars.

Funding Societies co-founder and CEO Wong Kah Meng (picture) said the product is in line with the company’s strategy to provide different products to cater to the different risk appetites among investors.

“As an alternative financing platform that serves diverse segments of clients and partners, we continuously gather feedback from our fellow small- and medium-sized enterprise clients and investors on how they want to grow further with us,” he noted in a statement last week.

“Among those feedback is the investors’ preference for shorter-term financing that provides lower risk, and this is part of the reason we are launching Dealer Financing, the country’s first collateralised P2P investment.”

Dealer Financing targets risk-averse investors who favour shorter-term investments with collateral.

In this case, investors’ ownership claim prevents used-car dealers from transferring the ownership or selling the car to any third-party before full repayment is made to investors.

Funding Societies is working with myTukar Sdn Bhd, MUV Marketplace Sdn Bhd and iCar Asia Sdn Bhd — independent car bidding platforms — who will inspect the condition, and verify the value and identity of the used cars before putting them up for bidding.

The P2P platform disbursed financing to over 100 used-car dealers via this new product offering.

Fundaztic, meanwhile, last week launched Principal Protect, which ensures that investors will not incur any capital losses by providing an automatic reimbursement of sums lost on a monthly basis of up to RM30,000 against defaults and write-offs.

This is applicable to all members who invested in at least 100 notes and in amounts that do not deviate more than three times from the average amount invested per note.

Fundaztic said it is the first P2P platform in Malaysia to offer capital protection of its own.

“We are committed to offer our investors protection on their capital and also give them the ease of mind knowing very well that at the very least, their investment capital will not be lost as long as they invest adhering to the criteria set to automatically enjoy Principal Protect,” its CEO Kristine Ng said in a statement last week.

“Fundaztic is proud to be the first P2P financing platform to provide protection and guarantee on a portfolio basis.”

Elite members on the platform who have invested RM100,000 and above will be protected up to RM30,000 via Principal Protect, while non-elite members with a below-RM100,000 investment and other members will be protected up to RM10,000.

Both Funding Societies and Fundaztic are registered with the SC.

The latter lowered its minimum age requirement for investors from 21 to 18 years of age, while Funding Societies’ minimum age remains at 21 years.

According to the SC’s website, P2P platforms are open to all investors, but retail investors are encouraged to cap their investment exposure on any conventional or Islamic investment note to a maximum of RM50,000 at any one time to limit their risk.

The process for investing via P2P differs from platform to platform, depending on the rules set out by the respective operator.

Taken from the SC’s website, the general process, however, can be surmised as follows: Issuer X issues an investment note that seeks to raise RM100,000. The note is rated “A” with a rate of return of 0.5% per month for a 12-month period.

An investor choosing to invest in Issuer X for an amount he or she chooses will receive monthly repayments (principal and returns) over the duration of the investment note.