The digital platforms have opened up many new investment options and we now live in a world where we are spoilt for choice on where we want to channel our funds into. One of the engines that have been promising good returns these days is the P2P or Peer-to-peer lending platforms. So, what is this and do they really work?
What is it all about?
The term P2P (peer-to-peer) means from one person to another. It is very much like eBay where you use the platform to buy and sell between people. In P2P lending, the platform is used to bridge investors to anyone needing funds to start or run a business. In other words, borrowers can use the online platforms to acquire funding as an alternative channel instead of having to rely on banks and financial institutions previously.
Being a new market that you can consider, be cautious not to over-invest your money. Always do your research before you take the leap because there are risks involved.
Why would anyone get into P2P lending?
The main attraction of P2P lending is that investors are promised better and higher returns. The risk profile of the borrower is normally used to calculate the interest rates by the lending platforms. You would want to get into P2P lending if you are looking for:
- Better returns – Most P2P lending platforms promise returns between 10 and 20% which is way higher than investing in fixed deposits (about 2% per year), mutual fund (averaging about 10% at most), EPF and others.
- Scheduled returns – P2P lending allows you to get scheduled returns and it can be monthly. In fact, you get your returns within 2 months after your first investment.
- Initial investment – You can invest from as low as RM50 although some might be higher. But they are still low compared to other platforms.
- Range of industries – You get to choose which sector you want to invest in whether it is in manufacturing, retail, education and such.
Is it all that good?
With all that said, it does not mean that P2P lending investment is a sure-win platform. The risk factor must be taken into consideration too (as with any other form of investment). P2P lending can be high risk as you are normally dealing with small or new businesses. Since they are mostly startups, the failure rate can be quite high. Borrowers are those who do not wish to use banks and that could be because of their credit ratings.
So, what should you do?
The most logical thing to do if you are planning to enter the P2P lending platform is to diversify your portfolio. Don’t put all your eggs in one basket. Make sure that you are entering into platforms that are legitimate and regulated by the Malaysian Securities Commission (SC). This is to ensure that your money is properly managed and protected. Do take note that any returns you make from P2P lending is taxable in Malaysia. Among the SC-licensed P2P lending platforms in Malaysia are AlixCo, B2B Finpal, CapitalBay P2P Financing, Capsphere, Cofundr, MicroLEAP, Fundaztic and Funding Societies, to name a few.
Each of the P2P lending platforms has their own respective return rates and requirements. Be sure to check them out and calculate your returns before you decide so that your investments are protected and properly managed.