FAQs on P2P lending in Malaysia.
What is P2P lending/financing?
P2P lending is basically loan of money to individuals or businesses through an online marketplace that matches between the lenders and borrowers.
You can also refer to Peer-to-Peer Lending in Malaysia – Quick Guide for a complete understanding.
Who are the borrowers?
Borrowers are typically individuals seeking for personal loans or companies sourcing funds for business purposes.
Who are the lenders?
Lenders are generally investors who seek to earn passive income in the form of interest on the loans lent out.
What is a P2P lending platform?
A P2P lending platform is an intermediary. It facilitates the loan transactions by connecting the borrowers directly to the lenders. It earns money by charging origination and servicing fees.
Is P2P lending legal in Malaysia?
P2P lending is regulated in Malaysia. In 2016, Securities Commission Malaysia (SC) introduced a regulatory framework to govern the industry. However, SC prohibits the operators to offer personal loans.
Who are the P2P lending platform operators?
There are six (6) licensed P2P lending platform operators to date.
Funding Societies Malaysia – Modalku Ventures Sdn Bhd
Fundaztic – Peoplelender Sdn Bhd
QuicKash – QuicKash Malaysia Sdn Bhd
AlixCo – FBM Crowdtech Sdn Bhd
Nusa Kapital – Ethis Kapital Sdn Bhd
B2B FinPal – B2B Finpal Sdn Bhd
You can refer to A Complete Review of P2P Lending Platforms in Malaysia for a comparison of all P2P lending platforms in Malaysia.
Who can be a P2P lending platform operator?
A P2P lending platform operator must be approved by the SC.
Based on SC requirements, an operator must be incorporated under Companies Act 1965 with a minimum paid-up capital of RM5 million.
Among other criteria, the directors of an operator must demonstrate that they are fit and proper to operate such business. Besides, the operator must also ensure that a transparent and effective risk scoring system is in place.
What are the obligations of a P2P lending platform operator?
The obligations of an operator include determining the suitability of the issuers and ensure compliance of its platform rules. This involves background checks, credit assessment, disclose relevant information to investors etc.
The operator also must place the amounts deposited by both investors and issuers in a 3rd party trustee account before making any disbursement. SC had also issued additional guidelines for the offering of Islamic investment notes.
What are the types of financing?
There are two types of financing – Business Loan Financing and Invoice Financing.
What is an invoice financing?
Invoice financing allows issuers to raise funds based on the value of their customers’ invoices. In other words, issuers sell their customers’ receivables to get money upfront before customers pay them.
Issuer A issues to Customer Z an invoice with an amount of RM100 with 30 days credit terms. Issuer A can raise (RM100 – service fee) through a P2P lending platform immediately with a few months maturity date.
After customer Z settles the invoice, Issuer A will repay the outstanding financing.
What is a Business Loan Financing?
The term differs between the P2P lending platforms. Business loan financing generally refers to funds raised for working capital or expansion purposes. The loan tenure typically ranges from 1 month to 24 months. With the exception for Fundaztic, it’s the only platform that allows a business loan financing raised up to 60 months.
Who can be issuers?
An issuer is a borrower that issues an investment note on P2P lending platforms. Issuers must be locally registered businesses. Either as sole proprietorships, partnerships, incorporated limited liability partnerships, private limited companies or unlisted public companies.
How much is the amount that issuers can raise?
SC does not impose a limit on the amount that issuers can raise on a P2P lending platform. But the limit of the amount and interest rate will depend on each platform’s own credit assessment.
Can issuers still raise funds on a P2P lending platform if the amount does not meet the target?
Issuers can only receive funds if at least 80% of the amount has been raised on a P2P lending platform.
Can issuers raise funds through multiple P2P lending platforms at the same time?
Issuers can only raise funds with different purposes via multiple P2P lending platforms concurrently. However, the issuers have to disclose to each platform operator.
Do issuers need to go through any credit assessment procedures like banks?
Yes. Any issuer has to submit the necessary documents to the P2P lending platform operators to conduct due diligence. They also need to go through the Anti-Money Laundering and Counter Financing for Terrorist assessments for regulatory compliance.
The process will be much faster because the procedures are more straightforward as compared to the banks.
Do issuers need to provide any collateral to raise funds?
No, issuers do not need to provide any collateral to raise funds through a P2P lending platform.
How long is the loan tenure?
The loan tenure that each P2P lending platform offers is different but ranges from 1 – 60 months.
How do issuers make repayments?
There are two types of repayments – monthly repayment or bullet repayment.
Monthly repayment normally applies to business loan financing. Bullet repayment refers to a one lump sum repayment made by issuers at the maturity date of a loan.
What are the charges for issuers to raise funds?
Each P2P lending platform typically charges a one-off application fee and origination fees when funds are raised successfully.
Can issuers make early repayment before the maturity date of a loan?
Yes. But an early repayment fee applies.
Who can invest in an investment note offered on a P2P lending platform?
Investment opportunities are open to all investors. However, SC encourages retail investors to limit their exposure to a maximum of RM50,000 at one time on any investment note.
Some P2P lending platforms categorized investors into retail, institutional and high net worth investors. Each category has a different limit to invest in the investment notes.
What information can investors get before participating in any investment note?
A P2P lending platform operator needs to disclose the relevant information of an issuer to the investors. The information includes the purpose of the financing, key characteristics of the financing, issuer’s financial information. Investors can also access the general risk warnings and risk disclosure of the issuer.
What happens if the funds raised do not meet the target amount of the investment note?
If the funds raised do not reach 80% of the target amount, the operators will refund to the respective investor.
How often do investors receive repayments?
Depends on the types of financing. For a business loan, investors will receive equal monthly installments comprising interest and principal until the maturity date. For invoice financing, investors normally get a one lump sum payment at the maturity date.
What returns do the investors get?
Investors will get (interests – service fees) as their returns assuming there’s no default.
What happens if there is a late repayment?
Investors will get late interest payments.
What happens if an issuer defaults on repayments?
A default occurs when a repayment due exceeds a stipulated period. P2P lending platform operators will facilitate to either restructure the loan with the issuer or outsource to a collection agency.
As a last resort, the platform operators may raise funds from investors to initiate legal proceedings to recover the amount. However, the operators will not reimburse any losses to investors in the event of a default.
QuicKash, one of the approved P2P lending platform operators offers investment notes with a principal guaranteed element. It charges a guarantee fee to an issuer. In the event of any default, the principal amount of the investors will be protected.
What is an auto investment tool?
There are a few P2P lending platform operators which offer an auto investment tool to the investors. The auto investment tool will match the investment notes based on investors’ criteria. And it also invests automatically on behalf of the investors.
What is the initial amount requirement for investors to invest in a P2P lending investment note?
The initial amount requirement differs between P2P lending platforms but ranges between RM50 – RM500. Some platforms require investors to make an initial deposit to register an account. Once the registration is successful, investors can use the deposits to invest in any of the investment notes.
How do investors ensure the amounts deposited with P2P lending platforms are safe?
SC mandated that all P2P lending platform operators must place the amounts received into trust accounts maintained by trustees (i.e. banks) before making any disbursement to either borrowers or investors.
What are the risks of investing in P2P lending?
The main risk is the risk of default. Investors may lose their principal amounts invested in the event that issuers fail to make repayments. There are other risks such as liquidity and prepayment risks.
You can refer to Understand the Risks of Investing in P2P Lending to get an in-depth understanding.
How do investors minimize their risks of investing in P2P lending?
Investors can significantly reduce their risks of investing in P2P lending by diversifying their loans portfolio. The returns from the investment notes can outweigh the losses in the event of any default in long run.
You can refer to Best Way to Avoid Risk of Investing in P2P Lending Malaysia. Discover the strategy to maximize your returns at a much lower risk.
What are the charges to invest in P2P lending?
There is a service charge to investors for investing in P2P lending. P2P lending platform operators will deduct the fee directly from investors’ returns. Each P2P lending platform has a different fee structure. You can refer to A Complete Review of P2P lending Platforms in Malaysia for a comparison between the platforms.
Can investors cancel their investments once they opt-in?
Once investors confirm their investments in any investment note, they cannot cancel.
Can investors withdraw their money from the account anytime?
Yes. Investors can withdraw the uninvested funds from the account anytime.
Is the interest earned taxable?
Yes, it is taxable for both Malaysia tax residents and foreign citizens.
For Malaysia tax residents, investors need to declare the interest earned as income during annual tax return filing.
For foreign citizens, P2P lending platform operators will deduct 15% withholding tax directly from the returns.
Is the investors’ personal information confidential?
Yes. P2P lending platform operators will keep the personal information confidential.
Is P2P lending Shariah-compliant?
Nusa Kapital is the only approved P2P lending platform operator that offers Islamic investment note which is Shariah-compliant.
Which is the best P2P lending platform in Malaysia?
I’ve been investing in P2P lending using Funding Societies for months. It works very well for me. You can refer to Funding Societies Malaysia Review – Best P2P Lending Platform in Malaysia. The article includes a comprehensive review of Funding Societies and a step-by-step guide to invest in P2P lending.
Please feel free to ask me any questions if you have any doubts.