Peer-to-Peer (P2P) Financing
Peer-to-peer (P2P) financing is another innovative form of financing that allows entrepreneurs and small businesses to unlock capital in small amounts from a pool of individual lenders. P2P enables businesses to borrow and investors to lend capital through online platforms registered with the SC. The SC launched the P2P Framework in May 2016. As at end-December 2023, about RM5.96 billion (2022: RM3.87 billion) of total P2P financing had been raised through 85,793 successful campaigns and 14,715 issuers.
The P2P segment flourished in 2023, boasting a 42% increase in issuers throughout the year, to 5,355 and raised RM2.09 billion via 31,002 campaigns (2022: 3,732 issuers, RM1.58 billion raised via 24,455 campaigns). However, campaign sizes stayed small, with 67% of the issuers raising RM50,000 and below. Wholesale and retail trade; repair of motor vehicles and motorcycles remained the largest sector in 2023, with total funds raised amounting to RM1.12 billion. The cumulative number of investors has exceeded 34,000 since P2P financing was first introduced. In 2023, the number of investors dipped by 3%, with the total number of investors declining to 15,599 (2022: 16,080). Newcomers to the platform made up 20% of these investors who participated in P2P financing in 2023. Almost half (46%) of the investors were of the below the age of 35 years, with 89% of the invested funds contributed by retail investors.
Eligibility Criteria for P2P Platform Providers
Any person or entity that seeks to operate a P2P financing platform must apply to be registered as a P2P operator under the SC’s Guidelines on Recognised Markets (or RMO Guidelines). All P2P operators must be locally incorporated and have a minimum paid-up capital of RM5 million. A P2P operator must also adhere to the following:
- Ensure there is an efficient and transparent risk-scoring system in place relating to the investment note or Islamic investment note.
- Conduct a risk assessment on prospective issuers intending to use its platform.
- Ensure the issuer’s disclosure document lodged with the P2P operator is verified for accuracy and made accessible to investors through the P2P platform.
- Inform investors of any material adverse change to the issuer’s proposal.
- Have in place processes or policies to manage any default by issuers, including using its best endeavours to recover outstanding amounts owed to investors.
- Ensure that its rules set out a rate of financing that is not more than 18% per annum. A P2P operator must consult the SC if it wishes to impose a rate of financing that is more this stated rate.
Who Can Raise Funds Through P2P
Notably, only locally registered companies can raise funds through P2P platforms. The crowdfunding exercise is only considered successful if it reaches at least 80% of its target and can only accept up to the targeted amount. P2P is slightly different from equity crowdfunding (ECF) in that an issuer can be hosted concurrently for different purposes on multiple P2P platforms. That said, the issuer must disclose to the P2P operator its intention of seek concurrent funding from other P2P operators. Only the following issuers can be hosted on a P2P platform:
| Locally incorporated or registered entities | The entities below are prohibited from raising funds through a P2P platform |
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Locally incorporated or registered entities:
- Sole proprietorship
- Partnership
- Limited-liability partnership
- Private company
- Unlisted public company
- Any other type of entity as may be permitted by the SC.
The entities below are prohibited from raising funds through a P2P platform:
- Commercially or financially complex structures (i.e. investment fund companies or financial institutions).
- Public listed companies and their subsidiaries
- Companies with no specific business plan or its business plan is to merge or acquire an unidentified entity (i.e. blind pool).
- Companies that propose to use the funds raised to extend loans or invest in other entities.
- Any other type of entity as may be permitted by the SC.
Eligibility Criteria for P2P Investors
Retail Investors
A maximum of RM50,000 per company, with a total amount of not more than RM 50,000 within a 12-month period.
Angel Investors
A maximum of RM 500,000 in total within a 12-month period
Sophisticated Investors
No restriction on investment amount.
Market Development
In 2020, the SC launched a secondary trading framework for ECF and P2P, to provide another exit mechanism for investors. This platform allows early investors to exit from deals they have invested in and to offer new investors the chance to participate in the deals they may have missed earlier. The Government of Malaysia (GoM) had initiated the Malaysia Co-Investment Fund (MyCIF) for ECF and P2P financing under Budget 2019 – to improve access to financing for micro as well as small and medium-sized enterprises (SMEs) to address their challenge in obtaining financing for growth. The SC administers this RM50 million fund which was first announced in 2018. The success of this fund prompted the GoM increase it by another RM50 million in 2020. MyCIF invests in ECF and P2P campaigns on a 1:4 ratio – for every RM4 invested by others, it will invest in RM1. This co-investment scheme is open to micro enterprises (MSMEs) and SMEs but is limited to a maximum of RM1 million per campaign. In addition, RM10 million has been earmarked for the co-funding of social enterprises, with a maximum of RM500,000 per campaign.
The SC has also allowed the registration of new P2P financing platforms to offer debt-based financing for mid-tier companies (MTCs). MTCs have a sizeable contribution to Malaysia’s GDP but have been primarily self-reliant in financing their business growth, especially if they have outgrown existing financing avenues for MSMEs but are still too small for the traditional public market. To be eligible for this new registration, interested applicants must demonstrate their ability to facilitate larger issuances of no less than RM 5 million and long-term financing of over 12 months.
Registered and Recognised P2P Operators
