This article first appeared in The Edge Financial Daily on September 18, 2018

KUALA LUMPUR: More can be done to serve the financing needs of small and medium enterprises (SMEs) outside of the Klang Valley, said a leading peer-to-peer (P2P) funding platform.

This, said Funding Societies, is because P2P financing in Malaysia is still at an infant stage, and the ones already available in the country are mostly serving businesses in the Klang Valley.

There are many businesses based elsewhere in the country that may not be in the know about the alternative financing opportunities available, said Funding Societies chief executive officer Kah Meng Wong.

Funding Societies, registered as Modalku Ventures Sdn Bhd, is one of six P2P financing platforms registered with the Securities Commission Malaysia (SC) and the largest among them.

The other operators are B2B FinPAL, Ethis Kapital, FundedByMe Malaysia, ManagePay Services, and Peoplender.

The role of a P2P operator is to facilitate businesses or companies to raise funds from both retail and sophisticated investors through an online platform.

The SC first announced the registered platforms in November 2016 with commencement of those operations from 2017 onwards. Based on estimates by the SC, local SMEs have a financing gap of more than RM80 billion.

“It will definitely get more interesting in the next 12 months or so,” Kah told The Edge Financial Daily recently. “For one, the SC has opened up applications again for P2P platforms so generally we can expect more of them to be in the market.”

As the market is huge, there is more space for players to help drive access to financing for SMEs, said Kah, adding: “With more players in the market, there will be more awareness and also more credibility.”

Funding Societies started out in Singapore in 2015 before expanding to Indonesia in 2016 and Malaysia in 2017.

Over the past three years, it has collectively disbursed more than RM650 million to SMEs over 9,000 deals in the three countries, said Kah.

He said in Malaysia, the firm is now seeking to actively create more awareness for businesses outside of the Klang Valley given the lack of outreach there.

Reaching out to those beyond the Klang Valley is important, said Kah, as there are many businesses that need help with expansion and optimisation of cash flow, and that alternative financing via P2P platforms can help speed up the process for them.

“For the most part, the awareness is still generally low. I think the awareness in the city is there, especially for the younger generation. But talking about the outskirts, it’s less so. It’s a work in progress.

“Therefore we have participated in more talks, events, exhibitions in order to get in contact with more SMEs and hopefully generate more awareness among them. We also work on targeting them through digital marketing,” he said.

Funding Societies matches SMEs and investors, offering three types of funding options depending on use, of which funds amount to an average of RM500,000 and come with flexible repayment options with no collateral required.

Speaking on the growth rate of the P2P space in Malaysia, Kah said while the maturity level is still low when compared regionally, it is growing.

Out of the more than RM650 million financing disbursed to date in the three countries, Malaysia accounts for only RM70 million, which Kah explained is due to the level of market adoption.

“There will be a period of gestation. If you look at experiences in other markets, there is usually a gestation period of two to three years. Gestation period in the sense of market adoption, market awareness, figuring out the right marketing channels. It takes time,” Kah said.

He noted that most users of Funding Societies are millennials as they prefer online processes given that the barrier to entry is low.

In fact, millennials make up 69% of investors on the platform, while 42% of borrowers are millennials, he said.

However, Funding Societies does not place focus on targeting a particular age group, Kah said. The main focus is to ensure the business is creditworthy.

“We do however want to create more awareness to everyone, especially non-millennials like baby boomers. This is because this group of people might need financing but they are not aware that P2P is able to grow their business,” he added.