In Malaysia, business financing through peer-to-peer (P2P) lending and equity crowdfunding (ECF) is on the rise, with a growing number of micro, small and medium-sized enterprises (MSMEs) turning to digital platforms to secure capital, and more investors embracing the trend to earn higher yields.
New data released by the Securities Commission Malaysia (SC) show that between 2020 and 2021, MSME P2P lending and ECF activity in Malaysia picked up significantly.
ECF and P2P markets continued to grow, recording 74% and 122% increase in total fundraising for both markets, respectively, as well as 33.3% and 48.6% increase in the overall number of successful campaigns and participating issuers.
In total, ECF and P2P campaigns have raised more than RM 2.7 billion across 4,556 MSMEs.
Looking at platforms’ volumes, data show that PitchIn was Malaysia’s biggest ECF platform last year, accounting for 38% of all funding raised through ECF campaigns in 2021 (RM 84.3 million (US$19 million)). At the second spot, with RM 46.9 million secured in 2021, is Mystartr. Mystartr recorded one of the strongest growth rates last year, with total funding raised jumping 179%.
In P2P lending, it is Funding Societies that recorded the largest volume in 2021, helping MSMEs secure a total of RM 309.2 million, or 27% of all P2P funding raised last year. CapBay and Moneysave, meanwhile, witnessed the biggest growth between 2020 and 2021, with volumes rising more than fourfold and 20-fold, respectively.
Malaysian MSMEs play a critical role in the local economy, contributing 37.4% to Malaysia’s gross domestic product (GDP) and employed 47.8% of the workforce last year, according to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
Yet, they’ve been among the sectors most badly hit by COVID-19. According to the Ministry of Entrepreneur Development and Cooperatives (MEDAC), a total of 37,415 businesses, mostly SMEs, closed following the pandemic, leading to massive job losses and significant household incomes decline.
With the market struggling to regain its footing, the government has implemented several initiatives to support MSMEs and help them recover from the economic effects of the COVID-19 pandemic.
Malaysia’s Finance Minister announced last year that the government would ramp up its support in equity and alternative MSMEs financing by allocating an additional RM 80 million to the SC-administered Malaysia Co-Investment Fund (MyCIF).
MyCIF, a public-private investment vehicle set up in 2019, co-invests in MSMEs and social enterprises alongside private investors via ECF and P2P lending platforms. The fund was established with an initial allocation of RM 100 million from the government.
Since its inception, MyCIF has co-invested a total of RM 357 million (US$80 million) in more than 16,000 ECF and P2P lending campaigns that benefited a total of 2,279 MSMEs, according to the SC. It’s most active in P2P lending, having joined a total of 15,946 P2P campaigns. So far, MyCIF has accumulated a net return of RM 4.6 million.
MyCIF is currently working on a new program in partnership with Funding Societies to help support the informal sector. The fund said it will co-invest in campaigns within the informal sector on a 1:1 co-investment ratio.
This year, MyCIF will continue to assist in ECF and P2P financing, but will have a specific focus on the agriculture sector, an industry which has been identified to be of strategic importance to the local economic recovery, the SC said.
Featured image credit: edited from Freepik and Unsplash
