Tell us more about Fundaztic.
P2P is basically debt financing. It is for companies that want to raise money and who have the capabilities of repaying it without any impact to their shareholding. Our target segment is the micro and small SMEs, so they must be at least a business that is registered with Companies Commission of Malaysia and already operating. Most of the time, companies that use our platform are looking for working capital to grow their businesses. In a lot of ways, we are a bit more relaxed than the banks in that they will only typically finance for working capital whereas we will consider other reasons, like say, a business that needs to renovate its premises or hire new staff to increase sales.
One of the interesting things about Fundaztic is that we underwrite start-ups and I think we are the only P2P platform in Malaysia that does so. We do this because our founders come from a banking background and we want to use technology to fill this gap in financing. We believe that start-ups are viable, but it is just that banks don’t have this risk appetite, so they don’t want to do it nor do they know how to do it. Also, the funding size is very small, so it might not be cost-effective for them. But for Fundaztic, we find that there is strength in numbers. In the entire Malaysian SME ecosystem, 80 per cent, or over 800,000 companies, are micro or small, and they are underserved. So why not legalise this and let the public decide if they want to lend to these businesses, and we pay the public interest that is higher than what the banks is giving them if they were to invest in FDs or wealth management products.
This is the reason why we decided to focus on this segment, where the total amount of financing is between MYR20,000 to 200,000, a repayment period of three months to three years with interest of 8 to 13 per cent per annum. Ours is a financial inclusion model for SMEs and we always wanted to be a wealth creation model for the masses. It is volume game and, so far, we have done 235 deals.
How did it all start?
I believe the idea started way back in 2013/14, when our Founder and Chairman Jeffrey Chew chanced upon a Lending Club, at that time the biggest P2P platform in the UK, and he was wondering why this was not in Malaysia. At that time, he was leaving banking to become the Group CEO of Paramount but, being a core banker through and through, he couldn’t pull himself fully away from the industry and he engaged with regulators to find out more about FinTech and peer-to-peer lending. So, even before the regulatory framework was put out, we were already in talks with the regulators trying to tap into their thoughts about this new industry. The breakthrough was in 2015 when the Securities Commission said that yes, they would be regulating the FinTech industry, but they would issue licences first for Equity Crowdfunding (ECF). That’s when we got excited and we thought, ‘OK, ECF is out, surely P2P will be out in a few months!’
On the Fundaztic website, there is a line about the ‘democratisation of financing and investment…’ Can you elaborate?
Democracy is about giving the freedom of decision making to the people and this is really the crux of what crowdfunding is and what Fundaztic has brought to life. When an SME approaches a conventional financial institution, whether they get their funding or not depends on mostly the credit and risk folks. What we do is slightly different. We have built-in an objective evaluation scorecard in the system that does not discriminate SMEs in terms of industry, entity, nor number of years in business. As long as they pass the scorecard and eyeballing process, we will host them. Whether they get their funding or not depends on the crowd (our members).
We have successfully funded businesses such as small cafes, salons and even a funeral service provider, which typically would be rejected by the conventional institutions. The crowd becomes the banker in P2P financing and they decide based on their own risk appetite. And, personally, I want every adult to be a part of this so that, in helping SMEs grow, they build their nest eggs too. I wanted especially for young people to be able to start investing and learning about investing early. That’s why Fundaztic does not collect any deposits for investing and investments can start with just MYR50.
FinTech is still at its nascent stage here in Malaysia. What do you foresee happening in the coming years?
Using human growth as a metaphor, Fintech in Malaysia is perhaps now a toddler. We are growing real fast and as ‘terrible twos’ are, we need to ensure that we continue to grow with proper controls and discipline, as well as governance and compliance to what is expected of the regulators or ‘parents’. If these are well observed, we will be able to drive change and efficiencies as intended, and would not compromise on the trust given by supporters during our growth phase.
As we grow on the trust of and acceptance by the public, we can continue to innovate with new products and processes, which will, perhaps in the next five years, give us the ability to move from being the alternative to mainstream even. In developed countries, we’ve seen the emergence of digital banks and that’s the way I see where we are headed since all our processes are online already and, as we speak, we are working on more innovations, such as the secondary market, which allows trading of Notes for early exits when needed.
TEXT FLAVIA GALEOTTI & EUGENE NG
PHOTOGRAPHY ROBIN YONG
ART DIRECTION AUDREY LIM