PETALING JAYA: In a year when multiple global crises unfolded simultaneously in 2022, peer-to-peer (P2P) lending platforms like Funding Societies have been standing resolutely behind Malaysia’s micro small and medium enterprises (MSMEs).
Having gone through the aftermath of the Covid-19 pandemic, small businesses had to face galloping inflation, rising costs, and global supply chain shocks. And in times of economic turbulence, traditional banks tighten up their credit requirements when MSMEs need their credit lines the most.
Thankfully, P2P platforms are able to help bridge the gap by connecting credit worthy local MSMEs with individuals and institutional investors through a digital marketplace.
Funding Societies Malaysia country head Chai Kien Poon said leveraging the use of alternative data in making its credit assessments was critical to ensuring MSMEs remained financed.
“We look at risk a bit differently from traditional financial institutions. Banks typically do not like to finance companies with reducing revenue and profit trends,” he said.
“Instead of examining traditional markers like three-year financial statements and pledged collateral, Funding Societies employs data analysts to scrutinise transactional data between the business and their customers.”
Stepping up during times of crises
As the pandemic battered Malaysian MSMEs, forcing 37,415 businesses to close, Funding Societies’ approvals for financing soared between Q1 2020 and Q1 2022, approving 3.12 million applications for financing.
Having disbursed more than RM552 million in the two years, Chai was adamant it is not a question of whether MSMEs were credit worthy. Instead, he said, it was a matter of nuancing assessment criteria to match the circumstances MSMEs found themselves in.
Funding Societies’ reach was aided by the step-change towards greater digitalisation practices that businesses undertook during the pandemic. Collaborations with Shopee and Lazada have widened their reach to merchants with pressing needs for financing.
In the short term, Funding Societies sees its role as bridging the cash flow gaps that businesses face. In the event of a long-term macro slowdown, it is looking to step in where banks naturally cave.
“In the event of a recession, traditional financial institutions will slow down lending, preferring not to finance companies with reducing revenue and profit trends. That’s where P2P platforms are able to step in to fill the gap,” Chai said..
Banks vs P2P: conflict or complement?
Funding Societies is also pushing back on the narrative that P2P platforms associate exclusively with “low quality” borrowers, ones that traditional financial institutions shun.
“We conduct our own thorough assessments of applicants, as ultimately investors will only invest if they are making decent returns,” said Chai.
As highlighted by the pandemic, P2P platforms were essential in delivering urgent, smaller ticket financing, often to nascent businesses operating in a less institutionalised manner.
He said legacy banks were more primed to deliver longer term and larger ticket financing, for which they offer much cheaper rates.
The evidence on default rates during the pandemic for Funding Societies loans lends further credence to his assertions.
“Default rates went up within our expectation during the pandemic, from 2% to 3%. Some borrowers had no choice but to close their businesses.
“But Funding Societies was able to help many businesses with default and restructuring plans to tide them through the period,” he said.
Positive regulatory environment
Having regulators in the vanguard of digital financing initiatives has also propelled the growth of P2P financing platforms in Malaysia.
Unlike countries like China, the US and the UK, where regulatory frameworks for alternative financing are a reactive measure to industry-led initiatives, Malaysia’s framework has been regulator-led.
Chai, who was previously with the Securities Commission Malaysia (SC), noted: “The SC has been very encouraging in promoting growth of digital and alternative financing platforms.
“Regular engagement with stakeholders engenders further advancement of the sector. The SC has amended its guidelines from time to time to accommodate developments in the industry”.
The SC’s dynamism in adapting to the fast-changing developments both of P2P platforms and the businesses they seek to finance is imperative in 2023, when cascading crises are expected to test the resolve of local MSMEs.
More than just doom and gloom
Singapore-based Funding Societies, which was founded in 2015, is the largest SME digital financing and debt investment platform in Southeast Asia.
Collectively, the group has distributed RM11 billion through more than five million transactions since 2015. Besides Malaysia, it operates in Singapore, Indonesia, Thailand, and Vietnam.
With its dominant market position in the P2P lending segment, the group is now striving to broaden its range of product offerings.
Having recently acquired Card Up, a Singaporean payments platform, Funding Societies is intent on integrating its financing products with a wider set of non-financing offerings, delivering a more comprehensive suite of services to MSMEs using its platform.
Source: https://www.freemalaysiatoday.com/category/highlight/2023/01/10/funding-societies-a-white-knight-for-msmes-in-time-of-need/