Investor: ‘I want higher returns from my investment.’
Businessman: ‘I need immediate cash to run my businesses.’

As I write, there is a new and vibrant platform that acts as a marketplace to connect SMEs that require financing and investors who are seeking for high yielding investment vehicles in Malaysia. The platform is commonly known as peer-to-peer (P2P) financing.

In 2016, the Securities Commission (SC) has announced the P2P financing’s regulatory framework and has approved six P2P operators in Malaysia. One of them is Funding Societies. Personally, I’ve explored its facilities, registered an account and began investing. Thus, I’ll be sharing my personal experience and what I know thus far about investing via Funding Societies.

Therefore, here are the seven things you need to know about Funding Societies before you invest.

#1: What’s Funding Societies?

Funding Societies was launched in February 2017 as the first P2P operator in Malaysia. Presently, it is also the largest P2P operator in our nation. Since its launch, Funding Societies has crowdfunded RM 310.8 million regionally (Malaysia, Singapore an Indonesia). For local SMEs in Malaysia as of December 2017, they had successfully funded RM18 million so far.

#2: What can Investors buy?

Investors can choose to invest in both or anyone of the two:

  • Business Term Financing
  • Invoice Financing

Business Term Financing allows investors to provide financing to SMEs for the purposes of working capital and capital expenditures over a short period of time. The duration ranges between 1 to 24 months. In return, the investors would profit from receiving interest payments from the respective SMEs.

Invoice Financing allows investors to buy over future receivables or invoices of SMEs at a discount. SMEs would benefit as they receive instant cash from the investors. In return, investors would profit from receiving interest income from the respective SMEs.

#3: How Much am I making?

Here is one of my investments in Funding Societies:

Funding Societies Investment Schedule
Funding Societies Investment Schedule

The details are as followed:

Investment (Principal) = RM 1,000.
Tenure = 12 months.
Simple Interest Rate per annum = 13% (before service fees)
Net Repayment = RM 1,107.44 (after service fee)
Net Interest Income = RM 107.44
Expected Net Returns on Investment (ROI) = 10.74%

Looking at the simple interest return of 10.74% might already be appealing, but the real effective compound return is way higher than that. If you’ve gone through one of my Time Value of Money webinars, you will be able to calculate the effective annual rate which is 19.26%.

However, there are risks involved. Let’s examine them.

#4: What is my Risk?

As I’m a financing provider (like a banker), I would face the risk of potential loan defaults and late payments. As at December 2017, Funding Societies has reported a default rate of 1.4%, which in my opinion is very good. This low default rate is based on the track record of their Singapore HQ. In their few months operation here in Malaysia, there is zero default so far.

Creditworthiness
Funding Societies provide a scorecard-based assessment of the SME’s creditworthiness. It is based on its business model, its financials, the directors’ CTOS and CCRIS scores, and its repayment behaviours.

Site Visits
In addition, Funding Societies may conduct site visits and interviews of directors of these SMEs to ensure that its portfolio of borrowers is of superior in quality.

Personally, I would screen through the potential borrowers by checking out their fact sheets before investing in them. The fact sheet contains:

The Financing Details
This includes the financing amount, simple interest rate, its purpose, documents obtained by Funding Societies and potential net returns from this investment.

The Company’s Summary
This includes the date of incorporation, the company’s business nature, its paid-up capital, number of employees, existing debt exposures, its financing records and repayment behaviour.

Directors’ Summary
This includes the duration of the directorship of a director in the company, his financing records and repayment behaviour, and any involvements in litigations.

Financials
The audited financial accounts and its financial ratios.

In addition, I would also diversify my investments to a number of borrowers so that my risk is well-spread out.

#5: How Much can I invest?

First and foremost, you may need to deposit RM 1,000 into your brand new account. From which, you can start investing with as little as RM 100. The maximum amount is capped at RM 50,000 per investment.

#6: How do I track my Portfolio?

I’m able to track my investment portfolio with ease in my account.

The Summary:

Funding Societies Portfolio Summary
Portfolio Summary

The Investment Details:

Funding Societies Investment Details
Investment Details

The Investment Repayment Schedule:

Funding Societies Investment Repayment Table
Investment Repayment Table

#7: How do I open my Account?

I find that signing up is relatively easy. For those of you who are interested, click on this link to start:
I want to Sign Up as an Investor in Funding Societies

Disclosure: It is my affiliate link. When you sign up using this link and invest RM1000 successfully, we will both be credited with extra RM50 for investment.

Happy Investing & Happy New Year 2018!


KCLau
KCLau

Personal finance author and trainer

    13 replies to "7 Things You Need to Know about Funding Societies before You Invest"

    • ayuni

      wow thank you so much kc for this sharing!

    • mariam

      Hi KCLau, thanks for your post. i would be registering using your link.
      Just want to ask, do you know if foreigners are allowed to invest as well.

      • KCLau

        Try opening an account with them. No harm trying. I think foreigners are allowed. Just got withholding tax.

    • fezal

      can i withdraw all my money if i didnt interested anymore in investing.

      • KCLau

        You can withdraw the balance anytime. But for the sum that participated in deal, you will need to wait for the payback period to get it back.

    • ny

      how about the defaults cases? how to resolve? please provide some example (if any).
      for Malaysian, is the interest profit subject to tax? or GST? or income tax?

      • KCLau

        So far, there is no default yet for the companies funded through FS Malaysia.

        The interest profit is taxable. And you need to declare to IRB using the yearly statement FS email to you.

    • JC Tee

      Hi,

      As a beginner on investing, I have been reading few of your articles. Thanks for sharing, I’ll be using your link to sign up.

      Well done.

    • CG

      registration just approved and noticed no more investment opportunities available, currently also only one ongoing investment deal right now.. curious if this still valid..

      • KCLau

        Now the supply of lenders is more than borrowers.

    • Jayden

      Hi, I’ve signed up about a week ago and my account just got verified after the payment was made, when would the RM50 referral fee be credited into my account?

    • Skye Grey

      Hi KC, I’m a foreigner residing in Singapore. I just would like to know if I can use your link to register to get the 50rm bonus? 🙂

      • KCLau

        I am not sure though. You will need to ask Funding Societies to confirm.

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