Learn what is crowdfunding, peer-to-peer (P2P) financing, how social lending works, selecting the best platform, and the benefits for you as an investor in Malaysia while reducing your risk exposure today!


What is Peer-to-peer Financing (P2P)?

Peer-to-peer Financing (or also known as social lending or marketplace lending) disrupts traditional banking with FinTech. P2P lets small businesses and entrepreneurs obtain capital (borrowings) from a pool of investors via an online platform through an investment note. Malaysia’s Securities Commission (SC) announced the P2P Financing regulatory framework in May 2016 (ASEAN 1st) and there are currently a handful of approved P2P operators.

Investment note: the promissory notes sealed between “issuer” and “investor” to manage the risks involved in funding the “issuer”. It is a short term debt security. This legal document obligates the “issuer” to repay the funding that it has obtained via the investments of multiple “investors” based on specific terms and conditions of repayments.

With P2P Financing, you are a investor-lender and will be repaid your investment-loan with interest at fixed intervals. The P2P lending is to companies NOT individuals (so you cannot give or seek a personal loan). Only locally registered sole proprietorship, partnerships, LLPs, private limited and unlisted public companies are accepted.

Local SMEs industry is estimated to record a financing gap of more than RM80 billion” ~SC chairman

There are no limits to the amount that can be raised but are required to raise at least 80% of the targeted amount as a minimum threshold.


Why do business owners consider P2P Financing?

P2P financing allows a business owner to easily submit a request for funding and receive financing in a short period of time. The business owner often get better rates than banks, easier approval, and often do not need to place any collateral.



Equity Crowdfunding (ECF) vs Peer-to-peer Financing (P2P)

Equity Crowdfunding (ECF) introduced by SC in 2015 has similarities to P2P Financing in that both are options to raise capital.

The key difference is that with ECF, you invest in the company and are given shares becoming a partial owner of the company (instead of a lender). As a shareholder, you are entitled to a share of the profits of the company (if any) and sale of your shares if the company becomes a public listed company. ECF companies are typically Small Medium Enterprises (SMEs) thus often larger and slightly more established compared to a company seeking P2P Financing.


Pros and Cons of P2P Financing

Pros of P2P

  • Low starting investment amount from as low as RM50.
  • Short-term investment period with fixed monthly returns.
  • Potentially higher returns than placed in a fixed deposit.
  • Arguably less volatility than shares or unit trusts, and uncorrelated movement to equity markets (investment diversification).

Cons of P2P

  • You often will not know which company you are funding until after (also the company can opt to remain anonymous).
  • Risk of the company defaulting on debt and unable to receive your investment returns.
  • Risk of the company going bankrupt and losing your original investment.
  • No PIDM protection (compared to FD/savings accounts)


P2P Financing Considerations

P2P Financing is a high risk investment and you need to consider your risk vs potential gains. As an investor, you get to choose how much risk you are willing to take. Lower-grade loans are higher risk but offer higher potential returns. Higher-grade loans are lower risk but offer lower potential returns.

Investors are categorized into 3 classes:

  • Business Investor: investing as a business entity with net assets value >RM10m
  • Angel/Sophisticated Investor: net assets value >RM3m or income above RM180/250k in last 12 months
  • Retail Investor: max investment amount capped at RM50k

Key Numbers:

  • Returns/Interest Rates: capped at max 18% p.a.
  • Expected returns = Interest rates on investment note less service fee
  • First return 1 month after investment note disbursed
  • Default rate: ~2% failure
  • Investment period: 1 – 24 months


  • Initial verification fees: none
  • Platform management service fees: 1-2% + GST
  • Bank transaction/withdrawal processing fees: as charged by bank (i.e. RM0.11)

Account Activation Process:

  1. Register and fill subscription agreement and upload identification documents.
  2. Make initial funding deposit.
  3. Sign investor agreement.
  4. Application review for approval.


Should you consider being a social lender?

P2P or social lending is growing rapidly and does help address the shortfall of funding for SMEs and breaks downs financial borders. As an investor, social lending can be an way to access higher returns. However, you do need to take time to do your research and understand the risks involved.


Social Lending Tips

  • Suggested overall asset allocation into high risk “other bet