Intrigued by the high returns promised by peer-to-peer (P2P) lending platforms, but sceptical about what they really entail?<\/p>\n
We\u2019ll try to demystify P2P lending for you, as well as help you decide if you should (or should not) invest in it.<\/p>\n
P2P lending is when investors lend money to individuals and businesses through online platforms. This allows borrowers to obtain loans without having to go through the strict requirements of banks.<\/p>\n
P2P lending generally promises higher returns than traditional investments, but investors take on higher risk as well. Like traditional financial institutions, P2P lending platforms calculate interest rates based on the risk profile of the borrower.<\/p>\n
High returns. <\/strong>Your return on investment with P2P lending can range from 10% to 18% (according to data provided by the platforms themselves). These are pretty high returns when compared to other investment options:<\/p>\n Monthly returns. <\/strong>With P2P lending, you\u2019ll generally start receiving monthly repayments a month or two after your initial investment, which is great if you like consistent returns on a monthly basis.<\/p>\n Low initial investment. <\/strong>You need as little as RM50 to RM100 to start investing in P2P lending, although some platforms may require an initial RM1,000 initial.<\/p>\n Control. <\/strong>You have direct control over which businesses to invest in. Don\u2019t want to invest in education-related businesses, or only want to invest in Shariah-compliant businesses? It\u2019s your call.<\/p>\n High risk. <\/strong>Businesses who apply for loans with P2P lending platforms tend to be startups or small businesses that aren\u2019t well established \u2013 and startups are notorious for their high failure rate<\/a>. These businesses tend to have lower credit ratings that make them ineligible for bank loans. When you invest with P2P lending platforms, you\u2019re exposing yourself to higher credit risk, so be prepared for the possibility that a borrower will default on their loan.<\/p>\n You could lose your entire principal. <\/strong>If borrowers default on their payments, you could lose the principal you have invested. Some platforms may take legal action against borrowers or work with them to propose alternative repayment solutions. Even so, your repayments are not guaranteed as you are an unsecured creditor.<\/p>\n To mitigate these risks, it\u2019s best to diversify your P2P portfolio. Don\u2019t invest your entire portfolio in a single business. Instead, consider diversifying your investments across different industries, risk ratings and even platforms. This way, you lessen the impact a default will have on your portfolio.<\/p>\n P2P lending is regulated by the Securities Commission Malaysia (SC). Before you start investing on a P2P lending platform, check if it has been licensed under the SC<\/a>.<\/p>\n There are strict guidelines on who these platforms can offer loans to. SC-licensed platforms are required to conduct background checks on all potential issuers to verify their business proposition and assess their creditworthiness. P2P platforms reject around 70%<\/a> of potential issuers.<\/p>\n Licensed platforms don\u2019t actually hold your money, but hand it over to a third-party trustee to manage. This is to minimise the possibility that P2P platforms will mismanage your funds. If the platform you invest with closes, the trustee will ensure that your ongoing loans still remain payable.<\/p>\n Yes, you do. If you are a Malaysian tax resident, you need to declare the interest that you have earned when you file your taxes<\/a>.<\/p>\n At the time of writing, there are 11 P2P lending platforms in Malaysia. Here\u2019s how they compare: Funding Societies<\/a> and Fundaztic<\/a> are some of the early entries into this scene. Another prominent P2P provider in Malaysia is\u00a0 CapBay<\/a>.<\/p>\n On the other hand, if you want to invest in Shariah-compliant businesses, consider microLEAP Islamic<\/a>, Nusa Kapital<\/a> or MoneySave<\/a> although the number of investments available may be limited.<\/p>\n P2P lending is a high-risk investment option. And thanks to the coronavirus pandemic, more businesses may have trouble<\/a> repaying your loans, which means that could be a higher chance of you losing your investment capital.<\/p>\n\n
<\/span>Cons: what are the drawbacks of P2P lending?<\/strong><\/span><\/h2>\n
<\/span>Is P2P lending safe?<\/span><\/h2>\n
<\/span>Do I have to pay tax on my investment returns?<\/strong><\/span><\/h2>\n
<\/span>Comparison of P2P lending platforms in Malaysia<\/strong><\/span><\/h2>\n
\n\n\n\n
\n\t \nName<\/th> Default rate<\/th> Minimum investment<\/th> Fees<\/th> Average net returns<\/th>\n<\/tr>\n<\/thead>\n \n\t AlixCo<\/a><\/td> 0.85%<\/td> RM200<\/td> 0.35% to 2% of repayment<\/td> 12% p.a.<\/td>\n<\/tr>\n \n\t B2B Finpal<\/a><\/td> 3.20% (gross rate)<\/td> RM1,000 initial deposit, RM100 per campaign<\/td> 30% of interest earned<\/td> 10.9% p.a.<\/td>\n<\/tr>\n \n\t CapBay<\/a><\/td> under 0.3%<\/td> RM10,000<\/td> 10% to 30% of interest earned<\/td> 8.3% p.a.<\/td>\n<\/tr>\n \n\t CapSphere<\/a><\/td> 2%<\/td> RM200 initial deposit, RM50 per campaign<\/td> 1 to 2% of monthly repayments<\/td> not stated<\/td>\n<\/tr>\n \n\t Cofundr<\/a><\/td> 1.38%<\/td> RM1,000 initial deposit, RM100 per campaign<\/td> For investments that are 12 months or under: 20% of interest
\n
\nFor investments that are over 12 months: 2.0% p.a. on principal<\/td>not stated<\/td>\n<\/tr>\n \n\t MicroLEAP<\/a><\/td> 0.77%<\/td> RM50<\/td> 2% of first monthly repayment of each campaign<\/td> not stated<\/td>\n<\/tr>\n \n\t MoneySave<\/a><\/td> 9.7%<\/td> RM5<\/td> Up to 15% of interest payment; up to 50% on prepayment<\/td> not stated<\/td>\n<\/tr>\n \n\t Nusa Kapital<\/a><\/td> not stated<\/td> RM500<\/td> 10% of returns<\/td> not stated<\/td>\n<\/tr>\n \n\t Funding Societies<\/a><\/td> 1.82%<\/td> RM100 initial deposit, RM100 per campaign<\/td> Business term financing: 2% p.a. of each repayment
\n
\nAccounts receivable financing: 15% of interest earned
\n
\nAccounts payable financing: 30% of interest earned<\/td>not stated<\/td>\n<\/tr>\n \n\t Fundaztic<\/a><\/td> 14.33% (cumulative since inception)<\/td> RM2,000 initial deposit (if using \u201cSmart Invest\u201d feature); otherwise no initial deposit required, RM50 per campaign<\/td> Monthly repayments: 2% of repayment amount
\n
\nBullet repayments: 1% of repayment amount<\/td>27.88% since 2017<\/td>\n<\/tr>\n \n\t QuicKash<\/a><\/td> 3.44% (total rate)<\/td> RM100<\/td> 1.35% - 1.50% per repayment<\/td> not stated<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nReferences<\/em>
\nhttps:\/\/www.alixco.com\/faq\/statistic<\/em>
\nhttps:\/\/www.b2bfinpal.com\/statistics-2<\/em>
\nhttps:\/\/capbay.com\/download-quarterly-report<\/em>
\nhttps:\/\/www.capsphere.com.my\/statistics<\/em>
\nhttps:\/\/cofundr.com.my<\/em>
\nhttps:\/\/www.microleapasia.com\/invest\/faq<\/em>
\nhttps:\/\/moneysave.com.my\/investor-faqs<\/em>
\nhttps:\/\/www.nusakapital.com<\/em>
\nhttps:\/\/fundingsocieties.com.my\/progress<\/em>
\nhttps:\/\/p2p.fundaztic.com<\/em>
\nhttps:\/\/www.quickash.com<\/em><\/span>
\n<\/span>\n<\/p>\n<\/span>Does P2P lending have a place in your portfolio?<\/span><\/h2>\n