Fundaztic’s CEO Kristine Ng talks about the company, and how it sets out to enhance SME access to financing.
By Bernie Yeo
Small and medium enterprises (SMEs) have been the backbone of the Malaysian economy since the 1990s and are an important driver in the nation’s employment and growth.
In fact, according to the World Bank, 97% of business establishments in Malaysia are SMEs, with these businesses being responsible for nearly 36% of the country’s Gross Domestic Product (GDP), 65% of the country’s employment, and nearly 18% of Malaysia’s exports.
Despite their importance, however, many of these businesses continue to face difficulties getting business loans from financial institutions. This therefore bodes the question: why?
In the current landscape, when a small or early-stage SME goes to the bank for a business loan, the banks would want to see a substantial track record or some form of collateral, and businesses that are unable to produce these would be shown the door.
The need for alternative funding solutions, therefore, is crucial, and this is where peer-to-peer (P2P) lending companies like Peoplelender Sdn Bhd play a crucial part. The company, which owns and operates peer-to-peer (P2P) lending platform Fundaztic, allows small businesses to borrow funds from a larger group of unrelated investors to gain the capital that is required for expansion.
Here, Smart Investor speaks to Peoplelender Sdn Bhd CEO Kristine Ng to learn more about P2P crowdfunding, and how SMEs can gain funding via Fundaztic.
Smart Investor (SI): Tell us about Fundaztic – what is its primary objective, and how is the company different from other peer-to-peer (P2P) financing platforms out there?
Kristine Ng (KN): We set up Fundaztic so that we can use technology to close gaps of inefficiencies in the current market to drive financial inclusion with the final outcome being enhanced financial well-being and security for the mass/general public. We were very clear since day one about building a model that caters to the mass market rather than a selected niche.
I think in one way or another all the six players are different primarily in their target segments. However, Fundaztic further differentiates by being the only platform as of now to have its end-to-end processes digitised and online, therefore available for both SMEs to apply for funding and investors to invest anytime, anywhere across virtually all devices with internet connectivity.
We also practise straight-through processing and as such applicants for funding will get a YES/NO via email within 10 minutes of submitting their application with a payment of RM50. We are also the only platform in the world that does not impose any deposits upfront from members before they can invest. A verified member can invest with as little as RM50 per Note.
SI: As a peer-to-peer (P2P) financing platform, Fundaztic provides alternative financing to SMEs, which is important in addressing the gaps in SME financing. Walk us through the process of how (potential) investors can make an investment. Also, who can make an investment, and is there a minimum amount that one can invest in?
KN: First of all, one would need to register as a member (the service is free) and we will then verify their identity. Once successfully verified, they can then begin investing. All they need to do is log in, go to the ‘invest’ page, read up on the Notes that they want to invest in and key in the desired investment amount and click ‘add to cart’.
The rest of the process is very much like online shopping whereby they are asked to check their ‘orders’, put in any promo code and then check out. Payment is via secured FPX ie direct transfer from their online banking website to our account.
Any Malaysian aged 21 years old and above with an active bank account in any of the banks in the country can begin the building of their portfolio with just RM50.
SI: In addition to making an investment, can an investor cancel or withdraw his/her investment?
KN: Once an investment is made, it cannot be cancelled or withdrawn unless funding is not successful ie the Note did not gather at least 80% of its funding goal by end of the funding period. Under such circumstances, the invested amount is automatically transferred back into the Trust account without any costs or fee deductions.
However, if funding is successful and can be disbursed, then the investor’s commitment will be throughout the funding tenure and they can only withdraw upon receiving their monthly repayments.
SI: The P2P lending sector is fast becoming a force to be reckoned with but like all types of investment, it comes with its own risks and/or concerns. What are some of these risks/concerns, and what are the precautions that are set in place by the company to handle this problem?
KN: Investors are faced with basically two risks, namely the platform risks ie is the platform legitimate, and in Malaysia, this risk is somewhat addressed by the Securities Commission (SC) through the issuance of licenses for the operation of P2P platforms based on compliance to its regulatory framework.
Currently, there are only six licenses granted. However, besides being legitimate, investors also need to look at platform risk from the angle as to who are the people behind the platform designing and managing all its processes. This is because the platform is actually the investors’ ‘first line of defence’ especially in the area of assessing credit worthiness and viability of the SMEs or issuers hosted.
The second risk would be repayment risks, ie the SMEs invested in cannot repay their commitments as agreed upon in the agreement. Repayment risks may be due to general business failure, cashflow issues or even fraud. This is why understanding how the platform sources its issuers, how the issuers are evaluated, and the mitigants that the platform put in place is very important.
If an SME invested in is unable to repay the commitments made, the investor would lose his/her remaining principal as although recoveries are performed, they are not guaranteed to succeed. This is why Fundaztic is ever so transparent so that potential investors can do all the homework they need about the platform before even registering as a member and we always advise our investors to diversify to mitigate repayment risks.
If you have RM10,000 and you invest in just 10 Notes, the risk is higher as opposed to the same RM10,000 being invested in 100 Notes. The success of P2P investing lies in building a portfolio of as many diverse Notes as possible. A portfolio should consist of no lesser than 50 Notes issued by 50 different SMEs.
SI: Are there any precautions that are put in place should the platform fail?
KN: Part of the regulatory requirement is that the platforms appoint an independent third party to be able to seamlessly take over the platform to ensure the integrity of investment Notes issued in the event the platform fails. This is called the resolution plan or ‘living will’. In this case, Fundaztic has appointed Rodgers Reidy for this purpose.
SI: According to The Malaysian Reserve, as of end August 2017, Fundaztic has hosted 14 investments with a total funding campaign of RM1.7mil and has disbursed RM720,000 to eight companies. How have the numbers changed since then?
KN: As at 30 June 2018, Fundaztic has hosted 210 Notes amounting RM19,505,000 of which 189 have been successfully funded and disbursed. The disbursed Notes are valued at a total of RM16,492,900. We are looking at closing the year by hosting about 500 Notes amounting to total of RM40mil.
SI: Moving forward, do you think peer-to-peer financing platforms will continue to grow in Malaysia? What are some of the things that investors can expect from Fundaztic in the near future?
KN: Absolutely. The future of P2P in the country is very promising, when observed from our own growth rate. The market awareness, trust and acceptance are increasing and we see the other platforms getting more vibrant as well. It is expected to hit the exponential year-on-year growth as experienced in matured markets such as the UK, US and China.
As for what’s to come, we are always innovating and coming up with exclusive programmes for our members. In fact, we have recently launched our Fundaztic Elite Club and Mass Rewards programme and we are currently in the midst of working on our new innovations which will again revolutionise the market as we have done thus far.
For more information about Fundaztic, please visit www.fundaztic.com.