Funding Societies to launch P2P platform in Malaysia 1H 2017
By Goh Thean Eu November 18, 2016
- Determined to make Funding Societies Malaysia (Modalku Ventures) a success
- Expect to breakeven faster than the industry average
FUNDING Societies, a peer-to-peer (P2P) financing company based in Singapore, plans to launch its P2P platform in Malaysia first half next year.
“We plan to launch only after we are ready, likely in the first half of 2017,” said Funding Society cofounder Kelvin Teo in an email interview with Digital News Asia recently.
According to Teo, the company sees each country as a new business. It currently offers P2P lending services in Singapore and in Indonesia.
“We will be investing significantly into Malaysia. We see each country as a new business. Clearly, there are lessons and infrastructure from our operating companies Funding Societies Singapore and Modalku Indonesia, which are useful for Malaysia.
“However, Malaysia is a different market, requiring extensive effort to adapt and build almost from scratch,” he explained.
Earlier this month, the P2P lending platform was given the green light by the Malaysian Securities Commission (SC) to be one of the six registered P2P financing platform operators in the country. It will operate the Malaysian P2P lending platform via Modalku Ventures.
Funding Societies’ strategy
While being one of the first P2P players in the South East Asia will give Funding Societies some sort of advantage, Teo admits that the journey will not be a stroll in the park.
“The fact is only a handful of P2P financing businesses in the world are making a profit and even fewer of them breakeven their investment, since the inception of the industry in 2005.
“Many of them quietly shut down, given how capital intensive it is. For example, P2P financing giant Lending Club, which was founded in 2006, only made its first dollar of earnings in 2014,” explained Teo.
“P2P is a long and expensive game. It would take years, if P2P operators ever get there, before the financials are in the black. Hence, P2P operators need to be ready for it.”
Nevertheless, with its experience on the South East Asian market, Teo and his team is optimistic that they can breakeven quicker than the industry average. However, he added that the company may choose to further invest into the business to make Funding Societies a world-class platform.
“We are determined to make Funding Societies Malaysia (Modalku Ventures) a success,” he said.
Teo (pic right) and his team will not be alone in the Malaysia P2P scene. For the near term, it will be competing against five other players – namely B2B FinPAL, Ethis Kapital, FundedByMe Malaysia, ManagePay Services and Peoplender.
So, how does he plan to differentiate itself with the rest?
“Interestingly, the SC has strategically selected six operators with complementary focus and capabilities.
“Funding Societies is the P2P operator with the most debt-crowdfunding experience in South East Asia, having crowd funded RM50 million to more than 200 small and medium enterprises (SMEs) in Singapore and Indonesia.
“We also have the broadest focus, targeting SMEs of various sizes across key industries. Hence, SMEs can be confident that we would meet their needs in terms of speed, service and financing,” Teo explained.
To attract lenders/ investors, Teo said that Funding Societies will be focusing on its continuous efforts in building trust and credibility in the industry.
“We were the first platform in South East Asia to engage a third-party escrow agency to handle investor monies, minimizing fraud and operation risks to investors, even before it was mandated by regulators.
“We have also invested significantly into both traditional and innovative credit assessment, enabling the platform to have the lowest, if not among the lowest defaults compared to other bigger platforms in South East Asia,” he said.
Will restriction limit growth?
For the Malaysian P2P operators, the rate of financing cannot be more than 18% per annum, and that there can be no concurrent hosting on more than one P2P platform for the same purpose.
By placing a cap on the rate of financing, the concern now is whether such move will cap P2P’s growth potential.
Teo believes that such move by SC is necessary, especially during the early days of P2P financing in Malaysia.
“Investors need to understand the implication of loan interest rates. Many investors are attracted to the potentially high interest returns quoted by P2P operators. However, high interest rates are not always good for investors. Rates must be high enough, but not too high. Overly high interest rates encourage adverse selection. Only risky SMEs who do not have a choice would accept overly high interest rates, increasing default risk.
“To me, the key thing is balance. An 18% cap does to an extent limit the growth potential of P2P financing industry, but it also reduces its risks. With the cap, P2P operators cannot just recklessly lend, with the hope of balancing defaults with overly high interest rates. As P2P financing is new in Malaysia, risk minimisation is more important than growth maximisation. To me, SC got the balance right,” said Teo.