Peer-to-peer (P2P) financing in Malaysia has continued to experience strong growth, with a 38% increase in financing amount for a total of RM1.58 billion across 24,455 campaigns in 2022 as reported in Securities Commission Malaysia’s recently announced Annual Report 2022. This comes on the back of a surge in the number of issuers with an 88% increase, highlighting the strength of alternative financing as a viable source of funding for the underbanked Small and Medium Enterprises (SME) segment.
Continued headroom for alternative financing growth
While adoption rate continues to improve, there are still opportunities for alternative financing such as equity crowdfunding (ECF) and P2P financing as the penetration rate in Malaysia is still relatively low. In 2020, ECF and P2P only contributed less than 1% of the economy when compared to traditional financing at around 88%, lagging behind neighbouring countries such as Indonesia and Singapore, signalling potential for future growth.
CapBay’s Co-founder and CEO, Ang Xing Xian, concurs that the growth opportunities within P2P financing has not reached its full growth potential. “The P2P financing industry has been vital in the Covid-19 recovery, extending a lifeline to businesses who require urgent working capital assistance. As we move towards a post-pandemic economy, the industry’s continued growth is a testament to the viability of P2P financing. CapBay is proud to have played a role in the growth, having financed RM1 for every RM4 raised through P2P financing in 2022, demonstrating our commitment to supporting underbanked SMEs.”
P2P financing campaigns outside the Klang Valley has doubled
Further growth opportunities exist for niche sectors such as agriculture, real estate, and healthcare that have shown impressive growth in 2022, but still lag behind sectors such as wholesale and retail trade; repair of motor vehicles and motorcycles that represented over 58% of financing raised. Furthermore, while the number of campaigns outside the Klang Valley has doubled, 54% of issuers are still located within Kuala Lumpur and Selangor.
In 2022, one of the most popular P2P financing products was invoice financing at 21% of the total investment notes, which is typically a lower risk product. “CapBay’s focus is in the lower risk segment, having contributed over 2,200 invoice financing notes in 2022 alone. We remain committed to maintaining prudent risk management practices, and will continue to prioritise lower risk products to safeguard both our investors and issuers,” said Xing Xian.
Government initiatives reflect commitment to developing alternative financing
Recognising the key role of alternative financing, the Government has continued initiatives to bridge the financing gap. Within Budget 2023, the Government committed RM40 million to the Malaysia Co-Investment Fund (MyCIF). According to the recent MyCIF report, the funds raised by P2P and ECF operators have increased sixfold since 2018 with the support of MyCIF. MyCIF will also introduce new initiatives to increase their co-investment ratio into ESG (environmental, social, governance) related campaigns and extend existing initiatives for the agriculture sector.
The Digital Innovation Fund (DIGID) was also introduced in Budget 2023 to co-fund projects that demonstrate the use of innovative technology within the Malaysian capital market. This initiative would assist in developing new sources of growth, process enhancements, and improve competitiveness through the use of new technologies. b
