Unlocking Malaysia’s MSMEs Through P2P Financing

With the difficulty in getting approved loans, small business owners should consider other existing mediums to obtain financial assistance. Alternative financing for MSMEs is another avenue outside of traditional financial institutions that businesses should tap into.

Unlocking Malaysia’s MSMEs Through P2P Financing

By Tunku Danny Nasaifuddin Mudzaffar, Founder and CEO of microLEAP


This economic crisis caused by the pandemic has severely affected Micro, Small and Medium Enterprises (MSMEs), and with banks tightening up their credit requirements, small businesses are finding it harder to access loans.

In fact, according to the Securities Commission Malaysia (SC), there is a RM90 billion funding gap for MSMEs in Malaysia. This requires immediate attention seeing that 96% of companies in Malaysia are MSMEs.

According to the Small and Medium Enterprises Association Malaysia (Samenta), 40% of SMEs had their loan applications rejected in the last six months. This is despite the Government's efforts to funnel funds through the banking system through various programmes such as PENJANA and PRIHATIN. This has placed numerous small businesses at a standstill.

As a founder of a startup myself, I can vouch that sufficient funding is needed to not just build a sturdy foundation, but to also expand your business in order to grow sustainably. Acquiring skilled employees, providing adequate training for existing and new talent, marketing your business, developing tech and inspiring innovation, are all tangible and intangible aspects of businesses that require monetary support.

With the difficulty in getting approved loans, small business owners should consider other existing mediums to obtain financial assistance. Alternative financing for MSMEs is another avenue outside of traditional financial institutions that businesses should tap into.

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One such alternative that should be discussed more frequently amongst small businesses is peer-to-peer (P2P) financing. P2P financing, in short, is an online platform that allows businesses to raise funds directly from a group of investors (lenders) and therefore bypass intermediaries such as banks. Regulated P2P financing has been given the go-ahead in Malaysia since 2016 and we are actually the first ASEAN country to regulate P2P financing.

Viability of P2P Financing

Being completely online, I believe that P2P financing acts as a viable alternative to cater to the financial needs of MSMEs because it is an overall faster, more convenient and less intimidating process compared to traditional loans.

The high flexibility of P2P platforms requires no need for physical visits or pitches from business owners such as you would require for Equity Crowdfunding (ECF), for example. Meaning that the business' chances of success will not have to rest solely on a spectacular presentation, but based on objective evaluation of the company’s revenue, balance sheet and profit & loss.

Although the solution sounds appealing, there is still some mistrust with the P2P financing market, particularly due to the rise and fall of P2P Operators in China and unregulated operators in Indonesia, which has resulted in what I believe to be low MSME participation in Malaysia.

Like other niche technologies and digital platforms, there are questions surrounding the credibility of this technology. From personal data safety concerns to platform legitimacy, I understand the need for caution, particularly in terms of cybersecurity risks in this digital age.

On top of that, considering how long P2P has been running within our nation, there is still unfortunately little awareness on P2P financing within Malaysian adults. Seeing how security measures and awareness are vital concerns, it is apparent that P2P platforms have much work to do to close this gap and truly unlock the vast potential of MSMEs.

Regulatory Guidelines

But I don't believe these are insurmountable odds. In fact, steps are already in place to address these specific concerns. From a credibility and trust standpoint, the Securities Commission Malaysia (SC) has provided strict regulatory guidelines that P2P financing operators have to follow, minimising risk in the overall market.

On the awareness front, I am proud to report that more efforts in promoting and educating the public on P2P platforms, both from the regulator and the P2P Operators themselves, are already being carried out - even by us at microLEAP. More time, energy and effort have been and will continue to be invested in outreach and education initiatives to build the necessary awareness amongst small businesses.

As a uniquely guided Shariah-Compliant P2P financing platform, we aim to be the trusted, dependable, digital and alternative financing solution for MSMEs to unlock their growth potential. With fully online processes, microLEAP is a much more flexible and user-friendly solution compared to other traditional financial institutions.

I genuinely believe P2P platforms are the solution to the current funding gap struggles. I hope that by dissecting the benefits and addressing some of the platform concerns head-on, we can take steps towards bridging this gap and supercharging MSME growth and in turn the growth of Malaysia's economy.