P2P (Peer-to-Peer) lending is one of the fastest-growing fintech (Financial Technology) platform that has been gaining a lot of traction across the world. The situation is the same in Malaysia where many companies and small businesses have already benefited from.
What exactly is P2P lending?
The idea of P2P is very simple. It is a place for borrowers to get funding (or loans) without needing to go through banks which have stricter and stringent requirements. In this case, you can participate either as a borrower or a lender. However, it must be noted that as an investor, the risk is higher. That simply means that you get higher returns as compared to traditional investments.
Why you should get into P2P lending?
Quite obviously, you want to invest in P2P lending because of its high returns. According to Malaysian regulations, P2P lending cannot impose rates above 18% which means you could possibly get up to that rate. The return on investment of P2P lending can be between 10 and 18% which is a lot higher for your money as compared to almost every other forms of investments.
A fixed deposit (FD) investment only get you up to 4% per year while unit trusts (good ones) do give you up to 10%. Even the (supposedly) most stable investment in EPF only give you about 6-7% interest per year.
- Apart from that, P2P lending investors do get their returns within 2 months of funding. In fact, you do get returns on a monthly basis which is considered a great option
- Initial investments need not be very high. In fact, you can invest in P2P lending from as low as RM50 (depending on the platform).
- Managing your funds is easier and you are in total control. There are a wide variety of businesses (from various sectors) that you can choose to invest your money into.
On the flip side, you might want to consider your decision to invest in P2P lending because of the following factors:
- Risk. Most of the businesses and borrowers who seek P2P lending platforms are usually SMEs or entrepreneurs. Some are just starting out in their business ventures. In other words, you will be in higher risk as compared to other investments.
- The failure rate can be higher than every other form of businesses. There is a high possibility that the borrower might not be able to service their loan due to cash-flow problems.
Is it safe to invest in P2P lending?
It is fundamentally safe to invest in P2P lending because it is regulated by the government of Malaysia. The Securities Commission or SC is the body that regulates all the activities in the P2P platforms. However, you need to check if the P2P platform is approved by the SC to operate. In fact, the guidelines by SC is quite strict.
In most cases, the licensed P2P platforms will channel the funds to a third-party trustee to manage the funds which mean your money is managed quite neutrally. Take note though that you will have to declare any earnings from your investment with the Malaysian Inland Revenue Board (or income tax). Among the P2P platform providers in Malaysia are:
- Nusa Kapital – Syariah-Compliant P2P platform
- MicroLEAP – Low investment start (RM50)
- B2B Finpal – Requires a RM1000 initial deposit
- Funding Societies – Requires a RM1000 initial deposit
- CapitalBay P2P financing