This article first appeared in The Edge Malaysia Weekly on May 24, 2021 - May 30, 2021
FUNDAZTIC was founded by Paramount Corp Bhd CEO Jeffrey Chew and soft-launched in July 2017 after getting the green light from the Securities Commission Malaysia (SC) for peer-to-peer (P2P) financing in the country in November 2016.
Through the platform, micro businesses, small and medium enterprises, and start-ups can apply for financing of between RM20,000 and RM200,000, with short repayment periods of three to 36 months. The funds are sourced from investors who are also registered on the platform.
Peoplender, the parent company of Fundaztic, is one of six registered operators in Malaysia issued with a licence for P2P lending. The rest are ManagePay Services, B2B FinPal, Ethos Kapital, FundedByMe Malaysia and Modalku Ventures.
Chew’s investment in the venture began before there was any hint that SC would eventually issue P2P licences, and even preceded his employment by Paramount in 2014.
His continued participation in the venture was one of three terms that Chew had put to Paramount chairman and executive director Datuk Teo Chiang Quan before he would agree to take the helm of the property developer.
The other two conditions he outlined was a seat on a bank’s board of directors, if the opportunity arose, and 30 days’ annual leave.
Teo accepted Chew’s conditions and, to the latter’s surprise, even asked to invest in the P2P venture.
“He said if the venture works out, maybe we could allow Paramount to come in. That was seven years ago. I told him, we’ll see where it goes. We didn’t even have a licence back then and we didn’t know there was going to be a framework [by SC],” says Chew.
As at June 30 last year, the number of issuers on Fundaztic amounted to 1,104 — about half of the total in the P2P industry. The platform had raised a total of RM82.54 million in funding, a 58% year-on-year increase from RM52.15 million and comprising 10% of funds raised in the industry.
The retail and wholesale segment makes up the largest portion of issuers on the platform at 37%, followed by the services and food and beverage (F&B) industries, which account for 25% and 11% respectively.
Chew says the platform has been rather successful, as the digital approach is very cost-effective and efficient, and applicants can quickly find out whether their application has been approved or rejected in about 10 minutes — as opposed to weeks if one were to apply for a loan from a traditional bank.
Fundaztic screens these applicants through credit bureaus, and also assesses the credit standing of the people behind the businesses in the event that a business is currently making a loss and unable to secure a loan.
If the people behind the business have strong credit standing and can provide a guarantee, the loan may be approved. Even if the platform rejects their application, they can quickly move on.
Moreover, Fundaztic’s customers comprise mostly smaller businesses, which find it hard to secure a loan from banks.
“If they were to go to banks, it is unlikely that they would secure a loan. If they do get approved, it may take three weeks to two months before they actually get the loan,” says Chew.
He adds that banks are reluctant to lend to these micro businesses and start-ups because of the banks’ cost of transaction, which makes it unprofitable to lend to these businesses, and their inability to take on the higher risks posed by smaller businesses.
The effective interest rate for borrowers is about 20% a year, which is relatively high because of the higher level of risk involved in lending to these businesses, says Chew.
This translates into returns of 8% to 10% for investors of Fundaztic — after taking into account the non-performing loans ratio (2% to 3%), write-off rate (6%) and fees paid to the platform (2% to 3%) — beating the fixed deposit rate of about 2%.
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