Smart Investor Malaysia


Digital Fund-Raising Platforms Set for Greater Growth


Promising prospects for the Recognised Market Operators in the ECF, P2P and cryptocurrency space.

In a world where convenience is key, Malaysia’s equity crowdfunding (ECF) and peer-to-peer (P2P) financing industry continues its steady growth and is expected to cement its position as part of the country’s financial landscape.

Both the online financing platforms collectively raised RM587.05 mil as at September 2019, benefitting close to 1,600 micro-, small- and mediumsized enterprises (MSMEs), according to Securities Commission Malaysia (SC) statistics.

There are now 21 registered recognised market operators (RMOs) in Malaysia – 10 ECF and 11 P2P financing players – whose role is to facilitate fundraising activities for businesses or companies from both retail as well as sophisticated investors via their respective online platforms.

For perspective, ECF is a mechanism that allows a start-up or other smaller enterprises to obtain capital through small equity investments via online portals to publicise and facilitate such offers to crowd investors.

P2P financing, meanwhile, involves a lending and borrowing activity between businesses and investors that are facilitated through online marketplaces, in this case P2P financing platform operators.

Positive Outlook for ECF

Since its introduction in Malaysia, ECF has become one of the preferred alternative financing options and as an enabler for small and medium enterprises (SMEs) to raise funds for their businesses.

In fact, Malaysia is the first country in Asean to have a regulatory framework for ECF. Six ECF RMOs were approved by the SC in 2015, followed by one in 2018 and three more in 2019, each possessing their own unique expertise and reaching out to new groups of investors.

As at September 2019, a total of 70 ECF campaigns raised a total of RM67.7 mil and have supported 69 SMEs, with 75% of the issuers being tech companies.

Source: Ata Plus

Ata Plus co-founders Elain Lockman and Kyri Andreou opine there will be a positive outlook in the upcoming year for ECF as an al ternative financing option and also as an enabler to spur the SME industry.

“The overall market outlook, however, is very dependent on external factors such as economic and geopolitical developments as Malaysia’s economy becomes increasingly intertwined with the global economy in events such as the recession in Hong Kong, the ongoing trade war between the US and China, the increasing number of civil unrest in many countries, and also climate change,” they explain.

Lockman and Andreou also note that ECF will probably see an increase in the number of deals as the Malaysia Co-Investment Fund (MyCIF) kicks in, along with growing awareness and understanding of the asset class among both companies and investors.

The government’s additional allocation of RM50 mil – announced during Budget 2020 – to t he SC’s My Co-Investment Fund (MyCIF) is expected to help drive greater awareness of both ECF and P2P financing as viable and attractive digital financing options for Malaysian SMEs. This is in addition to the RM50 mil allocated during the previous budget, thus bringing the total fund to RM100 mil.

From the viewpoint of companies raising funds, share Lockman and Andreou, this RM50 mil allotment to match investments in ECF and P2P financing platforms will ease their ‘burden’ to an extent and will encourage more companies to consider ECF as a viable opt ion for fund raising.

More exits expected in 2020

Earlier in October, Ata Plus announced its first exit which came in the form of Skolafund, an impact enterprise that crowdfunds scholarships to university students in need.

Skolafund, which fundraised on Ata Plus in February 2017, was completely acquired by one of Asia’s biggest donation crowdfunding platforms. The deal gives investors in t he ECF round a return of 10%.

In the same month, ECF platform pitchIN also saw its first exit after a group of MyCash Online investors accepted a buyout offer for their shares from venture capital (VC) firm 500 Startups. The offer, which gave them 44.2% returns over two years since the ECF deal, was made alongside an investment by 500 Startups into MYCash Online.

MyCash Online is a fintech startup that provides an online marketplace for unbanked migrants to purchase products and services online without the need for a bank account or credit card.

The third “exit” came in the form of a biotech company, Greenlagoon, although it is not really a traditional exit. One of the very first companies that raised funds via ECF wit h US$191,000 (RM800,000) raised from 24 investors from Crowdplus. asia, it has completed two renewable energy projects with two more in the pipeline.

Ata Plus’s Lockman and Andreou foresee the recent exits would have given investors greater confidence and more possible exits in 2020 is expected. They foresee the coming year may also see the launch of the secondary exchange that can support interim exits for ECF investors that would also motivate investors to invest in this particular asset class.

Setting the tone for 2020

Bikesh Lakhmichand, founder and CEO of 1337 Ventures, a technology accelerator and venture capital firm, concurs with Lockman and Andreou that 2019 has been an exciting year for ECF. Both these major developments (exits being materialised and the announcement made regarding the MyCIF), he believes, will help catalyse the ECF scene and attract more investors.

“Although the number of deals listed and successfully almost doubled in 2019, the total funds raised amount decreased by about 20%. However, we believe that 2019 has been a great year for ECF as we’ve seen the first exits in ECF – not just one, but three!” he points out.

Lakhmichand also believes that the ECF scene has matured significantly since its early days. What’s more, the idea of ECF as a source of alternative funding has gained significant traction. In fact, to some companies, ECF is mor e preferable compared to traditional financial institutions, he claims.

“The scene is slowly shifting towards becoming a more mature market. Insights from 2019 shows that issuers are becoming more realistic with start-ups providing more realistic valuations,” he notes, adding that investors are becoming smarter too, and are becoming more adept at sniffing out bad deals and are investing in deals that make sense to them.

“All in all, we believe that 2019 has been a great year in setting the tone for 2020. 2019 has helped legitimise equity crowdfunding via the first three exits with lucrative returns and the government’s MyCIF initiative.

“Furthermore, through the new issuers each with the own forte and focus, we believe that the ECF scene is set to gr ow exponentially in 2020,” Lakhmichand adds.

More players entering industry

On the P2P financing front, Fundaztic director and CEO Kristine Ng expects the industry to grow at an even faster pace as more players enter the industry, targeting different segments of MSMEs and different facilities that are made available to more MSMEs.

“We will see the introduction of insurance premium financing, assetbacked financing as well as more options of invoice financing,” says Ng.

“For Fundaztic, we will continue to focus on the same segments that we have been focusing on for the last two-and-a-half years and these are the micro, small and new businesses.

“Despite the fact that we have helped more than 800 MSMEs obtain funds (we would likely end the year helping more than 1,000 MSMEs), the market is huge, and we are only reaching a small portion of this segment, which makes up 80% of the total MSMEs base in the country,” she adds.

On the RM50 mil allotment announced under Budget 2020, Ng opines that the MyCIF is a helpful boost to the industry and all parties involved. “For MSMEs, through the MyCIF, the likelihood of their hosted Note receiving at least minimal funding goal is higher, and many would enjoy receiving funds faster.”

For instance, since the deployment of the first batch of MyCIF in September, for Fundaztic, the average speed to full funding goal has dropped by two days for the higher-risk Notes that will otherwise only be able to receive minimum funding of 80% or full funding by Day 10. For investors, MyCIF serves as a boost of confidence for the future and strength of the P2P financing industry and that it is a ‘legitimate’ and ‘legalised’ investment vehicle.

“The first six P2P financing plat forms were announced during the time when Bank Negara Malaysia (BNM) was clamping down on t he illegal money game operators and many were sceptical as to whether P2P is the same,” Ng recalls.

“With the government co-investing with them, investors would have a better peace of mind and we do see an increase in investors since the announcement.”

Source: SC

As for the platforms, the MyCIF is a timely boost to help spur growth and drive awareness, trust as well as acceptance. “In fact, in t he long run, it is forecasted that the funds will be self-replenishing through the interest returns and therefore, enhance access to funding and close the funding gaps – or at least for the viable MSMEs that are hosted by the platforms,” Ng explains.

The only way is up

microLEAP PLT chief executive officer Tunku Danny Nasaifuddin Mudzaffar says the approvals given by the SC for five new P2P operators in May 2019 is a testament of the confidence the regulator has in P2P financing, both as an alternative investment tool and also an alternative financing tool.

“From microfinancing – such as what we do at microLEAP – to asset financing to supply chain financing to insured trade invoice financing and lastly, to insured premium financing, P2P investors have never had such diversified and wide-ranging products for investment such as now,” he discloses.

“The Malaysian P2P financing sector has grown in leaps and bounds. From a total aggregate financing of RM37 mil in 2017 to RM213 mil in 2018 and then to RM587 mil in September 2019, this stellar growth will only continue,” foresees Tunku Danny. As to the market outlook for 2020 for the P2P financing sector, there is only one direction for the sector, and that is up, he says.

With further education and awareness, which all P2P operators are carrying out in their own capacity, alongside nationwide roadshows and events organised by the SC, the triple-digit growth the sector is experiencing is expected to continue.

“What I foresee really growing in a big way are Shariah-compliant investment notes. For a country such as Malaysia being a leader in the Islamic capital markets, we can definitely do much better in our disbursement of P2P Islamic financing,” explains Tunku Danny.

“In fact, microLEAP has just been given our Shariah Pronouncement for us to host Islamic investment notes and we hope to be given the green-light by the SC to ‘Go-Live’ with our Islamic product by end of 2019,” he reveals.

Helping Ordinary People Access Cryptocurrencies

Luno is the latest of the three recognised market operators (RMOs) approved to establish and operate a digital asset exchange or DAX in Malaysia.

With the full approval from the Securities Commission Malaysia (SC), the company is poised to help ordinary people access cryptocurrencies with their local currency, by making it easy to safely buy, sell and learn about Bitcoin and Ethereum.

“We believe that cryptocurrencies are a new technology that holds a lot of promise and hope to be able to upgrade the world to a new and improved financial system,” says Luno Malaysia events & community associate Arif Lee.

Lee says the cryptocurrency sector in Malaysia is still at its early stages, and with regulation coming into the picture, the sector will only further develop as it legitimises the asset class among investors and consumers alike.

“Undoubtedly, regulations will bring clarity and much needed protection to consumers by ensuring all legitimate cryptocurrency businesses have adequate standards in place to protect investors and their funds,” Lee says.

On what investors can expect from the cryptocurrency sector in 2020, Lee reveals there are some indications the SC will allow Initial Coin Offerings (ICOs) in the country, as they have sought public feedback on a proposed ICO framework in March 2019, which could add a totally new dynamic to the cryptocurrency sector.

“We applaud and support the SC’s efforts because many ICOs have turned out to be scams as they are not structured and those involved focus their efforts on the ‘raising money’ part, rather than use cases, a strong internal team and technological advancements.

“For Luno, we intend to onboard additional coins as we continue to grow. However, any cryptocurrencies that we intend to add will first have to go through the SC’s approval.”

London-based Luno is one of the world’s leading cryptocurrency companies with a team of over 300 technology and finance experts, with more than three million customers operating across 40 countries on three continents.

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