How microLEAP aims to help needy SMEs survive

  • As of April, microLEAP has 2K investors, funded RM2 million across 71 businesses
  • Partnerships is the way forward for the P2P platform, who is looking to expand

How microLEAP aims to help needy SMEs survivePISANG Goreng Bunpah Corner sits in Lorong Intan at Kampung Melayu Majidee, somewhere in the city of Johor Bahru. It has been there for 30 years, serving up its signature fried banana fritters with sambal kicap dipping sauce.

It’s both a local staple and an attraction for out-of-state foodies. Yet, when the owner went to the bank to apply for a loan, she was declined.

The reason?

Her business was only registered with the Companies Commission of Malaysia (SSM) for two years from the time she applied. Most banks only typically consider enterprises registered with SSM for at least three years.

It’s a story that’s surprisingly common. Bunpah Corner was a business making a profit, but was denied a loan based on a technicality. It’s another business slipping through the cracks of traditional financing.

But this story had a happy outcome.

Instead of banks, Bunpah turned towards microLEAP, the Malaysian homegrown peer-to-peer (P2P) micro-financing platform. Through this platform, the business raised US$9,631 (RM40,000). And the stall has now been upgraded, and business has since seen improvements.  

[RM1 = US$0.241]

To aid entities like Pisang Goreng Bunpah Corner is exactly why microLEAP was established. Launched on October 2019, microLEAP – which is regulated by the Securities Commission – connects micro entrepreneurs with P2P investors.

Fintech has long been touted as the bridge for financing gaps, and microLEAP is already demonstrating that.

“We pick up those that slip through the nets of traditional banking,” says Tunku Danny Nasaifuddin Mudzaffar, microLEAP’s founder and chief executive officer.

A year of growth

Platforms like microLEAP are proving more important in the wake of the Covid-19 pandemic, which has undoubtedly been tumultuous for micro businesses like Bunpah.

In fact, the past year has greatly accelerated microLEAP.

“We went live with our Islamic P2P investments in April 2020, and in the space of four to five months, our funded notes grew by over 1,000%, all pushed by investors looking for Islamic assets,” claimed Danny.

According to him, microLEAP is thus far the only P2P financing platform in Malaysia offering both Islamic and conventional financing notes.

How microLEAP aims to help needy SMEs surviveIn an interview with Digital News Asia, Danny attributes its growth to microLEAP’s investor growth, who embraced the platform to look for better yield.

In 2020, the Malaysian central bank lowered policy rates to 1.75%. In contrast, microLEAP’s P2P investment returns can provide anywhere between 10 to 15% per annum, he says.

As of April 2021, microLEAP has just about under 2,000 investors, successfully funding almost RM2 million to 71 notes – 97% of which are Islamic financing notes.

It’s a far cry from the six investment notes they had back in March 2020, says Danny.

Islamic financing focus

Notwithstanding what it has achieved, microLEAP is hoping to do more.

In May 2020, it reached out to the Malaysian Technology Development Corporation (MTDC) to serve as their Islamic P2P financing partner. As part of the deal, MTDC allocated RM2 million for microLEAP to invest or to lend to tech companies that both parties have vetted through, Danny says.

MTDC would invest up to 30% of the investment note, while the rest would be funded by P2P investors on microLEAP’s platform.

Beyond that, microLEAP has also partnered with the Malaysia Digital Economy Corporation (MDEC) as part of their eBerkat programme, a digital financing service for the B40 community.

Meanwhile, microLEAP has also begun talks with SME Corp and the Malaysia External Trade Development Corporation (Matrade) for future partnership opportunities, Danny reveals.

It’s easy for the P2P platform to just rest on the laurels of its massive growth, but microLEAP is already making headways into new areas.

For instance, it launched its Shariah-compliant financing tailored for car dealers in May 2021, which essentially allows car dealers to raise funds via the platform using their cars as collateral.

How microLEAP aims to help needy SMEs surviveBy the end of July, microLEAP plans to launch its invoice financing product on the platform, which is done in a Shariah-compliant manner, says Danny.

Noting that the focus on Islamic financing is not just something microLEAP offers as a differentiator, Danny says it is actively pushed by its users, specifically its investors.

For one, Islamic assets are in fact, a form of ethical investment as Shariah-compliant notes mean that the businesses are not in alcohol, gambling and tobacco.

This perspective even led to non-Muslim P2P investors to pick up Islamic notes, claims Danny

The differentiators

microLEAP differentiates itself not just via its Islamic offerings, but also two key aspects: their financing speed and their safety measures.

The platform uses its own proprietary credit risk algorithm, which consists of two components, Danny reveals.

Firstly, they draw data from its credit bureau, which is expected.

Secondly, unique to microLEAP is that it conducts psychometric testing on its borrowers. This is particularly important, as micro small and medium enterprises (SMEs) applying for funding on the platform likely won’t have a thick credit history file.

“Some may not have bank loans, credit cards and car loans. Many banks are not looking at them because they have no credit history,” Danny says.

Psychometric testing requires borrowers to answer 20 questions, which allows microLEAP’s test provider to generate a credit risk file that is then fed into the platform’s risk algorithm, allowing them to ascertain the risk rating, explains Danny.

According to him, there has been no issue as the default rate stands at 0%.

The platform is essentially both open enough to embrace entrepreneurs that would’ve fallen through the gaps in traditional financing, yet strict enough to ensure investors are protected, explains Danny.

The company ensures a low default rate by contacting its borrowers early enough to ascertain if they require additional time or if they need to restructure thier loans in order to repay the funding.

“We’re a bit stricter at credit risk than perhaps other operators, because we have to take care of two sets of users, the lenders and borrowers. We ensure that the borrower (or issuer) is strong enough on their own to pay back,” he explains.

For instance, businesses that have an online presence or operate on an online-offline model, are preferred as microLEAP can be more certain that they can weather Covid-19 lockdowns.

The leap forward

In future, microLEAP is hoping to expand their presence, beyond Klang Valley, where the majority of its user are.

While they have funded borrowers in every single state in Malaysia, it wants to explore the largely-untapped areas in the country, says Danny.

Beyond that, microLEAP is seeking to expand regionally, with a goal to tap into Asean by the middle of 2022. He says Indonesia will be its first stop, followed by the Philippines, Laos and Cambodia.

Understanding that each country would have their own financing requirements, Danny says it would need to find local partners as joint venture partners to enter the market.

Danny also points out that there are more players entering the fintech space, from Grab (with Grab Financial) to AirAsia (with BigPay).

These superapps will seek to collaborate with other players, such as incorporating P2P financing within their offerings.

“That’s definitely the kind of collaboration we want to get involved in. We do have a few conversations in that space, though there’s nothing concrete yet. But that’s where the fintech industry is heading,” he argues.

As for the future, Danny says microLEAP is “in a good trajectory.”

“This year will be a better year than the last for us. We’re already seeing that in terms of growth, [and you can] expect more from us.”

 

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