I have been investing with Funding Societies since 2017. 

I remembered, at that time, P2P lending was still a relatively new concept, and I was intrigued by its opportunities to earn 10+% a year in cash yields safely, securely, and legitimately. I chose Funding Societies as my preferred platform to invest in as it is the first P2P platform launched in Malaysia. And it has an excellent reputation for operating successfully in Singapore. 

Since then, I had invested RM 178,780 with Funding Societies, and I had attained an annualised portfolio performance of 6.64%. Here, I’ll pen down my thoughts and experiences from being a P2P investor and offer a couple of pointers to new investors who intend to explore P2P investments. If you avoid my mistakes, you’ll do better than my past performance.

What is P2P Financing and How it Could Offer 10+% a Year in Cash Yields? 

In brief, P2P investing consists of three main parties. 

First, we have business owners who intend to raise quick funds to run and grow their businesses. Lenders will obtain interest payments for their capital. 

Second, we have investors like myself who would lend money to these business owners to pursue interest income. 

Third, we have Funding Societies which is a P2P platform that is regulated by the Securities Commission. The platform connects local business owner and P2P investors on regulated platform Some of their critical functions include:

  1. Perform credit assessments on businesses that intend to raise funds. 
  2. Raise funds from P2P investors and disburse them to these businesses. 
  3. Collect loan repayments from these businesses to repay their P2P investors. 

Latest Developments at Funding Societies

Since its inception, Funding Societies had disbursed 4+ million notes (loans) worth RM 6.5 billion and recorded a default rate of 1.31% regionally. Currently, it has expanded its offering of financing products to: 

1. Business Term Financing 

It offers business owners unsecured (no collateral needed) financing amounting to RM 1.5 million, where the loan repayment (principal + interests) is scheduled on a monthly basis. 

2. Invoice Financing

This is ideal for businesses with credit sales and needs consistent cash flow and cash upfront. Invoice financing allows business owners to get cash in advance from Funding Societies for their sales invoices billed to their customers. The amount of money paid to a business owner is lower than the amount stated in the invoice. Subsequently, Funding Societies would collect the amount stated in the invoice from the business owner’s customer. As such, P2P investors who participated shall profit from the difference between the two. 

3. Dealer Financing

Collateralized financing taken by used car dealerships in Malaysia to finance the purchase of used motor vehicles. It is the first P2P investment product backed by additional security, which is the ownership claim on the financed vehicles. 

As such, P2P investors like myself can choose to invest (or lend) our money into any of the three financing products stated above. 

Question: How Do I Select My P2P Investments? 

In essence, P2P investing is about lending money to earn interest income. 

Since it involves lending money, investors can assess each potential borrower’s credit strength before investing into any notes (loans) listed in the platform of Funding Societies. 

You can easily interpret a factsheet as the sample screenshot below: 

With Funding Societies, the minimum amount to invest in each note is RM 100. The investment period varies between 1-18 months. Thus, investors could start investing with small capital, and they can recoup back their invested capital fast. 

But, as shown above, I invested RM 178,780 with Funding Societies through reinvesting. I can’t read each note to invest RM 100 each time. For me, it will be a waste of time to spend 30 minutes deciding on a RM100 investment. 

Thus, I use the auto-invest feature provided by Funding Societies to assist me in investing. From time to time, I would review my portfolio.

My First Investment Loss with Funding Societies 

It was a smooth ride in my first year, for I received both my capital invested and interest income in full. 

Then, in my second year, I incurred a slight loss due to a borrower defaulting on its loan repayment. It had dented the perfect score of my investment portfolio. 

Of which, I learnt an invaluable lesson when it comes to P2P investing. Here, let me first illustrate the mistake I had made: 

Let’s say I’m starting my investment with a capital of RM 10,000. 

Of which, I’ve invested RM 1,000 each into ten different notes to spread my risk. Each note is projected to yield 10% in cash returns per annum, and they all have a tenure of 12 months. 

Nine of these notes did well, and I had received my RM 1,000 in capital and RM 100 in interest income for these nine notes. During this period, one of these notes went on default. I lost RM 1,000 from investing in that particular note. 

All in all, I’d received RM 9,900 after 12 months, resulting in a total loss of RM 100, despite getting 9 out of 10 notes right. 

The loss from one wrong note can wipe out gains from the other nine notes. 

Realising this, I figured out that it is better to reduce the investment amount on each note to limit the impact of one lousy note on my entire portfolio. Thus, let’s revisit the illustration above: 

Again, I’m starting my investment with a capital of RM 10,000. 

Instead of RM 1,000, this time, I’ll invest RM 100 each into 100 different notes. 

Each note is projected to yield 10% in cash returns per annum, and they all have a tenure of 12 months. 

Twelve months later, 99 of these notes did okay. I incurred a loss only on one particular note, which went on default. I have received RM 10,890 in cash, consisting of RM 9,900 in initial capital and RM 990 in interest income. Hence, I would still have net earnings of RM 890. 

7 Practical Tips to Mitigate Risks of P2P Investments

In addition, I would like to list down actionable steps that you could consider to reduce risks on your P2P investments further: 

  1. Understand that Defaults are real and are parts and parcels of the game. 
  2. Choose short-term notes to recoup your capital faster. (One month is better than 24 months even though the return is lower) 
  3. You’ll take a longer time to recoup capital if you invest in longer-term notes. 
  4. Invest minimum on each note and spread out your risk to as many as possible. 
  5. I encourage to diversify your investments into multiple notes evenly. I made losses as a result of investing a high amount in a lesser number of notes.
  6. Set and limit your maximum exposure. 
  7. Use auto-invest features to save time and invest efficiently. 

How to Start Investing with Funding Societies? 

To sum it up, investing with Funding Societies has been a rewarding experience for me. It is suitable for investors to lend their money via a highly regulated and digitised platform in pursuit of higher interest income. 

So, if you are interested to start a portfolio with Funding Societies, you can sign up via the link below: 

Link: Sign Up to Invest at Funding Societies

When you use my referral code: j3mejime and invest a cumulative of RM1000 within 60 days, you will receive RM30 in your investment account as a bonus.


KCLau
KCLau

Personal finance author and trainer

    7 replies to "Funding Societies: An Honest Review & Reflection of My Portfolio"

    • Yeo ST

      Agree with Tiong Tin and Chin Hong. I’ve been investing for 2 years now, spreading out in RM100 on different notes. Sadly, the default rate is so high that my net income is RM100 over 2 years! I’ve stopped making new investment and have been re-allocating to stocks.

    • TAN TIONG TIN

      It is unfair that we rakyat have to pay tax on the interest income but cannot expense the capital loss from bad loan in P2P. Unfair because businesses and companies can expense loss. Overall 3 yrs in FS loss is almost same as 3 yrs interest income… nett almost negligible.

      • KCLau

        I do agree with you on the bad loan. It should be deductible.
        So far, I haven’t been writing off the loss from bad loan either.

    • chin hong

      thx for your honest review, but i think still missing 1 thing, which is the risk/reward ratio, which risking to lost all the investment for the 10%-12% reward but also dont forget that is taxable income as well…
      I been withdrawn all my deposit since last year and put at discounted blue chip.
      thanks you.

      • KCLau

        The return is taxable. For individual with high tax bracket, they will need to weigh the return/reward like you said. I am withdrawing too mainly due to the 30% flat rate on my income in Malaysia, making the return no longer appealing as a non-resident taxpayer.

    • Pritapal Singh

      Hello Mr KC Lau,

      I’d like to generate an income of 4k/5k / mth. How do we go about doing that ? How much investment do I have to make ?

    • Kok Kuan Ki

      The review came in timely for newbies like me in P2P investment. Good job, KC.

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