P2P Financing Opportunities (Funding Societies)

Thursday, March 8th, 2018 | In Investment Instruments | Tags: , , ,

Funding Societies is a new and peer-to-peer (P2P) financing platform that acting as a marketplace to connect between the SMEs that require financing and investors who are seeking for high yielding investment vehicles in Malaysia. In November 2016, Malaysia became the first ASEAN country to regulate peer-to-peer (P2P) financing when the Securities Commission (SC) has announced six P2P financing operators. P2P financing, a business model taking place of financial technology innovation, and it is new a way to widen access to business funding for small and medium-sized enterprises (SMEs).

P2P Financing Opportunities (Funding Societies)
~ P2P Financing Opportunities (Funding Societies) ~

But P2P financing isn’t just for SMEs in need of working capital. The business model is simultaneously reliant and beneficial to two parties, which are SMEs and investors that seeking an alternative instrument with relatively higher returns. P2P financing is a form of alternative finance, where online platforms connect between SMEs and investors. Through P2P financing, more of the underserved segment would have accessed to funding and working capital.

If an investor sees an SME as promising and investment-worthy, they will invest in to the funding amount requested by the SME. SMEs will then repay the financing in monthly installments with interest to investors who pooled together funds for them. By investing into SMEs, investors will earn advantageous returns – often higher than fixed deposits (FD), bonds, and other traditional instruments.

What is Crowdfunding?
~ What is Crowdfunding? ~

How to Get More Than 10% Annual Returns from P2P Financing
P2P financing is fairly user-friendly. User can just simply register to a credible P2P financing platform, transfer your first deposit (Usually RM1,000.00), and invest into SME funding opportunities you are interested in. Minimum investment per SME varies across platforms. Local platform Funding Societies, for example, allows you to invest as little as RM 100 into each SME. If all goes well, you should see repayments starting the next month.

There are, of course, steps to optimize your investments – chief of them is diversification. A diversified portfolio would minimize risks while providing the best returns. Diversification simply means distributing your funds across as many SMEs possible to prevent loss in the case of default. If you have invested RM 1,000 in P2P financing, spread your funds into 10 SMEs at RM 100 per SME. That way, if one or two SMEs default, your returns stay positive and will remain close to expectations.

Another tool for maximizing returns is reinvestment. Use the returns you made from P2P financing repayments to fund new SME financing opportunities. Without reinvestment, you only receive the expected rate of return from a single investment. But with reinvestment, not only are you increasing the size of funds you are giving SMEs, you are also absorbing greater returns. Through continuous diversification and reinvestment, you can earn up to 25% per year (in effective interest rate) from P2P lending platforms like Funding Societies.

The final point makes a worst-case scenario where all SMEs default highly unlikely. However, there are caveats. There should be a good regulatory framework for the industry and investors should be educated. For one, Malaysia has begun the regulatory process and has provided licenses to a select few, including Funding Societies. For the second, it is up to individual investors to do significant research and optimize their portfolios with diversification and reinvestment.

Funding Societies is the first licensed peer-to-peer (P2P) financing platform to launch in Malaysia. It provides working capital financing for small and medium-sized enterprises (SMEs); and also offers investment opportunities with returns up to 25% per annual.

As in any investment, there are risks – and in the case of P2P financing, there is a risk of default. Every P2P platform has its own policy on default, so investors need to take time to understand these policies to protect themselves. To mitigate default risks, here are the seven things you need to know about Funding Societies before you invest.

1. What’s Funding Societies?
Funding Societies was launched in February 2017 as the first P2P operator in Malaysia. Presently, it is also the largest P2P operator in our nation. Since its launch, Funding Societies has crowdfunded RM 310.8 million regionally (Malaysia, Singapore an Indonesia). For local SMEs in Malaysia as of December 2017, they had successfully funded RM18 million so far after a few months of operation.

2. What can Investors buy?
Investors can choose to invest in both or anyone of the two:
– Business Term Financing
– Invoice Financing

Business Term Financing allows investors to provide financing to SMEs for the purposes of working capital and capital expenditures over a short period of time. The duration ranges between 1 to 24 months. In return, the investors would profit from receiving interest payments from the respective SMEs.

Invoice Financing allows investors to buy over future receivables or invoices of SMEs at a discount. SMEs would benefit as they receive instant cash from the investors. In return, investors would profit from receiving interest income from the respective SMEs.

3. How Much am I making?
Here is one of my investments in Funding Societies:

The details are as followed:

Investment (Principal) = RM 1,000.
Tenure = 12 months.
Simple Interest Rate per annum = 13% (before service fees)
Net Repayment = RM 1,107.44 (after service fee)
Net Interest Income = RM 107.44
Expected Net Returns on Investment (ROI) = 10.74%

Looking at the simple interest return of 10.74% might already be appealing, but the real effective compound return is way higher than that. If you’ve gone through one of my Time Value of Money webinars, you will be able to calculate the effective annual rate which is 19.26%.

However, there are risks involved. Let’s examine them.

4. What is my Risk?
As at December 2017, Funding Societies has reported a default rate of 1.4%, which in my opinion is very good. This low default rate is based on the track record of their Singapore HQ. In their few months operation here in Malaysia, there is zero default so far.

Funding Societies provide a scorecard-based assessment of the SME’s creditworthiness. It is based on its business model, its financials, the directors’ CTOS and CCRIS scores, and its repayment behaviours.

Site Visits
In addition, Funding Societies may conduct site visits and interviews of directors of these SMEs to ensure that its portfolio of borrowers is of superior in quality.

It is good to understand the potential borrowers by checking out their fact sheets before investing in them. The fact sheet contains:

The Financing Details
This includes the financing amount, simple interest rate, its purpose, documents obtained by Funding Societies and potential net returns from this investment.

The Company’s Summary
This includes the date of incorporation, the company’s business nature, its paid-up capital, number of employees, existing debt exposures, its financing records and repayment behaviour.

Directors’ Summary
This includes the duration of the directorship of a director in the company, his financing records and repayment behaviour, and any involvements in litigations.

The audited financial accounts and its financial ratios.

In addition, I would also diversify my investments to a number of borrowers so that my risk is well-spread out.

5. How Much can I invest?
First and foremost, you may need to deposit RM 1,000.00 into your brand new account. From which, you can start investing with as little as RM 100.00. The maximum amount is capped at RM 50,000.00 per investment.

6. How do I track my Portfolio?
To track your investment portfolio with ease in my account. Like the Summary, the Investment Details, the Investment Repayment Schedule and etc.

7. How do I open my Account?
Signing up is relatively easy. Just follow through with the instruction on their website. For those of you who are interested, click on this link below to start:

Here is my referral link:


When you sign up using this link and invest RM1,000.00 successfully, we will both be credited with extra RM50.00 for investment (You & Me will get RM50.00). Please make sure you use this referral code: jebfs0de

Happy Investing & Happy New Year 2018.

Credited to KCLau & fundingsocieties & Others.


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