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microLEAP – Bringing Islamic P2P Financing to the Masses

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microLEAP’s focus on Islamic financing gives them an edge in this relatively new, but vibrant P2P financing industry.

The peer-to-peer (P2P) financing industry in Malaysia may still be young, but there is already a wide variety of operators aiming to carve out a slice of the pie. Among them is microLEAP, and while they may not yet be a household name, the platform is certainly gaining traction quickly among those in the know.

As a regulated company by the Securities Commission Malaysia (SC), microLEAP offers both conventional and Islamic peer-to-peer (P2P) financing, but the latter is far more popular. In fact, some 98% of their investors opt for this method, highlighting how Islamic financing is becoming a widely used channel among investors in general.

At the time of writing, microLEAP boasts a 0% default rate with a total of 62 fully funded notes, indicating a growing, but robust P2P financing ecosystem. These numbers are perhaps indicative of the current climate that has seen growth opportunities within the industry despite the Covid-19 pandemic, a point that Tunku Danny Mudzaffar, the founder and CEO of microLEAP, is keen to stress.

“Though there have been commendable efforts by the government to provide bank loans to businesses in the form of the Penjana SME Financing Scheme, some banks still have a strict, though slightly loosened, credit criteria, resulting in many micro and small-medium enterprises (MSMEs) falling through the net,” he reflects.

“This provides a massive opportunity for alternative financing such as P2P. However, we have to be careful of the type of businesses that we host on our platform. As a P2P financing operator, we have to always take care of our investors as well as our issuers. The last thing we want to do is to host an issuer on our platform that will likely cease operations in the next two months or default on payments regularly.”

Focus on Islamic financing

One of the key tenets of microLEAP is that investors keen on Islamic P2P financing can enjoy peace of mind knowing that all assets they invest in are Shariah-compliant.

“The Islamic principle that we use in microLEAP is commodity murabahah or tawarruq whereby a commodity transaction is carried out on the back of the financing. This method is approved by the Shariah Advisory Council of the Securities Commission Malaysia (SC),” explains Tunku Danny.

“For Islamic P2P financing, ‘riba’, or usury, is not allowed (haram) as an increase in the money lent, in other words interest, as a condition imposed by the lender is considered unjust. Therefore, financing in a Shariah-compliant manner is important.”

microleap islamic p2p financing

This commitment has certainly helped them grow along with their mission. In January this year, microLEAP announced a funding round worth RM3.25 million from MAA Group, made up of RM2 million in cash and RM1.25 million in equity, in addition to a commitment from the group to invest a further RM10 million in various investment notes, highlighting both investor confidence in the company as well as the values it operates by.

“Issuers who raise Islamic financing must not be involved in a non-Shariah compliant industry. Therefore, no gambling, alcohol, tobacco or pork-related companies, for example, may raise via Shariah-compliant means,” he adds.

“Investors will know that they are investing in ethical investments, as Islamic principles and ethical investments go hand in hand. This is why we have many non-Muslim investors as well who are drawn by Islamic P2P financing, as their focus tends to be the guarantee of ethical investment practices.”

Attracting a younger demographic

P2P financing may be a relatively new form of investing, which can seem alien at times to seasoned investors who have been dabbling for decades. However, like other forms of alternative investments, it is attracting a younger crowd that may not necessarily have been drawn to investing at all in the first place.

“P2P financing is simple, fast and online. For many millennials, this is the perfect investment tool that fits snugly into the palm of their hand,” opines Tunku Danny.

“What we have done at microLEAP to further tap this generation of investors is to gamify the whole investment process so that they may invest towards lower fees as they rise through our ranks.”

Part of this includes the ‘League of Extraordinary Investors’, a feature that allows investors to collect points as they invest in order to cash on a monthly basis in the form of credits while climbing up the ranks of Rookie, Apprentice, Champion and Sifu. In fact, the platform recently saw its first Sifu level investor, which saw his management fees halve from 2% to 1% for each investment he made.

And while they have made a blazing start to life in the P2P financing industry, microLEAP is not resting on its laurels. There is a slate of new features scheduled to be launched this year, including new Islamic products like Islamic car dealer financing and Islamic invoice financing which “we hope to launch in Q1 and Q2 this year” according to Tunku Danny.

There are also plans to digitise further to extend their reach, including the potential launch of an app in Q2 which should see the platform becoming more accessible to a wider demographic of potential investors.

With such robust growth, the presence of microLEAP should only help to further develop what is already a burgeoning P2P financing industry in Malaysia.

Click here to learn more about microLEAP.

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