Equity crowdfunding, P2P financing see a bigger role to finance SMEs

The alternative financing space now accounts for about 3% to 5% of the total financing landscape in Malaysia

by HARIZAH KAMEL / Pic by BLOOMBERG

MALAYSIA’S equity crowd-funding (ECF) and peer-to-peer (P2P) financing platforms still have a lot to offer and contribute to the wider economy although it is not the main financing space.

microLEAP founder and CEO Tunku Danny Nasaifuddin Mudzaffar said the alternative financing space now accounts for about 3% to 5% of the total financing landscape in Malaysia.

“There’s room for growth but as an alternative financing space — we will never replace the banks.

“However, the reason that we were set up and why the Securities Commission Malaysia (SC) regulates P2P and ECF is because they found that there was a RM80 billion funding gap where banks were not funding certain micro, small and medium enterprises (MSMEs),” he said at a recent panel discussion titled “Market-Based Funding Options for Halal Businesses” at the SC-Halal Development Corp Forum 2021.

Fellow panellist, Ethis Malaysia CEO Wan Dazriq Wan Zulkiflee concurred, saying there is a whole lot of opportunity that comes in serving the “unbanked” and circulating capital and resources to them in the real economy.

“From the supply side, SC’s report stated the take-up for ECF and P2P has essentially increased by 43% from 2019 to 2020 and we see this trajectory to grow from 2020 to 2021,” he said.

Tunku Danny stated ECF and P2P are not as strict as banks, but still carry out due diligence to make sure companies have the revenue and profit to pay back.

“Another thing that is great with P2P is the speed of financing. It takes a company about three months to get a loan from a bank but in the P2P financing world, the quickest we’ve done is about 50 minutes.

“Another difference is the profit rate, banks are obviously only on board with credit-worthy companies. P2P financing is not as strict but there comes risk,” he said.

“This means companies have to find a trade-off, do you want speed or easy financing but the profit rate is higher than traditional banks,” he said.

Tunku Danny said microLEAP is a Shariah-compliant P2P platform, and its interest or profit rate is between 12% to 15% per annum compared to the bank’s rate of about 6% per annum.

He added due to the Covid-19 pandemic, P2P platforms like microLEAP had to be more risk-adverse and assist micro-enterprises and SMEs that have pivoted to online selling on platforms like Grab, Foodpanda and Shopee.

“Unfortunately for businesses in the tourism sector, for example, we know many will not survive, so we have to reject them. We are seeing a little bit more businesses from e-commerce and some offline and online MSMEs coming to us,” he said.

Gobi Partners MD Jamaludin Bujang opined that businesses must start utilising technology to sell their products as it is also a prerequisite for investment by venture capitalists.

“Tech accelerates scaling up of businesses. Tech and digitalisation help businesses to access markets beyond their geographical area. That’s how we look at it,” he added.

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