In the search for smarter, more accessible investment options, Malaysians are increasingly turning to Peer-to-Peer (P2P) financing — not just for diversification, but as a reliable source of passive income.

With low interest rates on fixed deposits and the volatility of stock and crypto markets, P2P financing offers a middle ground: steady returns, controlled risk, and meaningful impact by supporting local businesses.

Here’s why this alternative investment class is gaining traction.

What Is P2P Financing?

P2P financing is a digital funding model where individuals or institutions finance businesses directly via online platforms like CapBay. In return, investors earn profit (or interest) from repayments — often at higher rates than traditional savings or fixed income instruments.

P2P platforms act as facilitators, conducting risk assessments, matching financiers with creditworthy businesses, and managing the repayment process.

1. Attractive, Stable Returns

One of the top reasons Malaysians are shifting toward P2P financing is its competitive returns. While savings accounts offer ~2–3% annually, P2P financing can yield returns between 6% and 10%, depending on the product and risk profile.

With platforms like CapBay, where the default rate is exceptionally low (below 0.1%), investors benefit from steady and predictable income flows, ideal for long-term wealth building.

2. Lower Barriers to Entry

Unlike property or private equity investments, you don’t need tens of thousands of ringgit to get started. With minimum investment amounts as low as RM100, P2P financing is accessible to young professionals, retirees, and everyday investors looking to grow their savings.

This affordability has made it a popular entry point for Malaysians exploring alternative investments.

3. Monthly Passive Income

Unlike stocks, which may not pay dividends regularly, or FDs that only mature at the end of a term, many P2P financing opportunities (especially invoice and supply chain financing) offer monthly repayments of both principal and profit.

This regular cash flow is ideal for:

• Supplementing retirement income
  
• Reinvesting to compound returns
  
• Supporting short-term savings goals

4. Diversification Beyond Traditional Assets

With growing uncertainty in the global economy, investors are looking beyond traditional asset classes. P2P financing offers low correlation to stock market fluctuations, making it a powerful tool for portfolio diversification.

By financing across multiple notes and businesses, you can also spread risk and maintain a balanced portfolio.

5. Shariah-Compliant Options Available

For investors seeking values-aligned opportunities, platforms like CapBay offer Shariah-compliant P2P financing products, giving Muslims in Malaysia a structured way to grow their capital ethically.

This is especially relevant as demand for Islamic finance continues to rise both locally and globally.

6. Making a Real Impact

Perhaps the most unique aspect of P2P financing is the social impact. Your investment doesn’t just grow your wealth — it directly helps Malaysian SMEs secure funding for:

• Fulfilling large contracts
  
• Buying inventory or raw materials
  
• Managing cash flow during long payment terms
  

This means your money works for you and the economy.

The Bottom Line

As Malaysians grow more financially savvy, P2P financing is proving to be a practical, impactful, and profitable investment option. Whether you’re planning for retirement, building a secondary income stream, or simply diversifying your portfolio — now may be the time to consider adding P2P financing to your strategy.

Your capital can work harder — and do more good — when it’s powering real businesses.

Interested to learn more about our P2P Financing Platform?

*The information provided in this article is based on the current tax laws and regulations at the time of publication. As tax laws and deadlines may change, it is advisable to consult with the Inland Revenue Board of Malaysia (LHDN) or a professional tax advisor for the most up-to-date and accurate information regarding your specific circumstances.

The performance of peer-to-peer (P2P) financing platforms has varied across regions and over time. Despite this, the model presents a mutually beneficial opportunity: issuers gain access to the funding they need—often at more competitive rates—while investors enjoy the potential for higher returns compared to traditional investment avenues.

However, as with any investment, P2P financing carries inherent risks. To maintain investor confidence and ensure long-term sustainability, successful P2P platforms implement robust risk management frameworks and investor protection strategies. Here’s how it works.

Rigorous Credit Assessment and Underwriting

Peer-to-peer (P2P) financing platforms increasingly leverage advanced technologies such as data analytics, machine learning, and social profiling to evaluate borrower creditworthiness. Rather than relying solely on traditional credit scores, these platforms utilise alternative data sources—such as mobile phone usage, e-commerce transactions, social media behaviour, and bank transaction history—to assess a borrower’s identity, cash flow, and repayment patterns.

According to a report by Deloitte, over 60% of fintech lenders use non-traditional data for underwriting, significantly improving financial inclusion for thin-file or credit-invisible individuals. This approach is especially crucial in Southeast Asia, where a large portion of the population remains underserved by traditional financial systems. More than 70% of the regional population is considered underbanked or unbanked, with the highest combined rates found in Vietnam (79%), the Philippines (78%), and Indonesia (77%)—which also happen to be the region’s most populous nations.

Additionally, more than 60% of survey respondents in an industry study stated that they are actively exploring the use of alternative data and analytical techniques to enhance credit portfolio management, indicating a broader industry shift toward data-driven financing practices.

Tiered Risk Categorisation

To assist investors in making informed decisions, P2P financing platforms classify borrowers into risk categories based on factors such as repayment ability, financial history, and business performance. Returns are then aligned with the associated risk—higher returns for higher-risk borrowers, and vice versa.

Furthermore, a study published in the Journal of Economic Studies analysed over 1.8 million loan records from 2007 to 2020 and found that macroeconomic variables, such as unemployment rates and GDP growth, significantly influence loan default probabilities. Incorporating these factors into risk assessment models can improve the accuracy of borrower risk categorisation, aiding investors in making more informed diversification decisions.

Diversification Tools for Investors

One of the golden rules of investing is diversification. Reputable P2P financing platforms offer automated investment tools that spread investor funds across multiple loans and borrower segments. This strategy mitigates the impact of any single borrower defaulting, significantly reducing portfolio volatility.

According to the 4thWay P2P and Direct Lending Index, P2P financing has returned an average of 7.36% per annum over the past decade, outperforming the FTSE 100 index, which returned 4.90% per annum during the same period. Notably, P2P financing experienced no down years, while stock market investors faced three down years.

Legal Recourse and Recovery Mechanisms

When borrowers default, platforms may pursue debt recovery through legal and third-party channels. This includes restructuring repayment terms, engaging with collection agencies, or legal proceedings. Strong platforms will have clear recovery processes and update investors on status and outcomes. 

Should the default continue despite the LOD, platforms in Malaysia are authorised to initiate legal proceedings. This can involve applying for a court judgment, and if necessary, enforcement actions like wage garnishment or asset seizure.

Conclusion

Peer-to-peer (P2P) financing has emerged as a transformative model in the financial landscape, offering issuers access to funding at competitive rates while providing investors with the opportunity for higher returns. Despite its inherent risks, successful P2P platforms effectively manage these challenges by implementing robust risk management frameworks and investor protection strategies. In conclusion, P2P financing represents a viable alternative to traditional investment avenues, offering substantial returns while promoting financial inclusion. With well-implemented risk management practices and continuous investor transparency, P2P platforms can maintain investor confidence and ensure long-term sustainability in this evolving market.

Interested to learn more about our P2P Financing Platform?

*The information provided in this article is based on the current tax laws and regulations at the time of publication. As tax laws and deadlines may change, it is advisable to consult with the Inland Revenue Board of Malaysia (LHDN) or a professional tax advisor for the most up-to-date and accurate information regarding your specific circumstances.

We understand that choosing the right investment option can often be confusing. Today, we’ll highlight the key benefits of P2P financing to help you determine whether it’s a worthwhile investment.

In today’s ever-evolving financial landscape, peer-to-peer (P2P) financing has emerged as an innovative and appealing alternative investment choice. P2P financing platforms are gaining popularity among investors, offering higher returns and more reliable passive income streams compared to traditional investment options, which may not always meet investors’ expectations.

What is Peer-to-Peer Financing?

P2P financing emerged in the early 2000s as a revolutionary alternative to the limitations of traditional banking systems. This model aimed to connect borrowers directly with individual lenders, bypassing the often cumbersome and restrictive processes of banks. The decentralised approach quickly gained traction, especially after the 2008 financial crisis, as consumers sought more flexible and accessible financial solutions.

The global peer-to-peer (P2P) financing market has experienced impressive growth in recent years. Valued at approximately USD 161.25 billion in 2023, it is expected to grow at a compound annual growth rate (CAGR) of 27.6% through 2029. The rising popularity of P2P financing is largely driven by its efficiency, accessibility, and simplified processes. It is particularly favoured by small and medium-sized enterprises (SMEs) and individual borrowers who may find it difficult to secure loans through traditional banking channels.

Reasons to Invest in P2P Platforms

Simple to Begin, Simple to Manage

One of the biggest advantages of P2P financing is that the entire process can be managed online. From registering as a lender (simply click here), choosing the borrowers and loans you wish to fund, to receiving monthly repayments, everything can be done through an easy-to-use online dashboard on your computer or smartphone. This makes P2P financing an excellent option for millennials looking to grow their wealth, as it provides a convenient and accessible way to get started.

The Securities Commission (SC) introduced the P2P Framework in May 2016. By the end of December 2023, approximately RM5.96 billion (up from RM3.87 billion in 2022) in total P2P financing had been raised through 85,793 successful campaigns and 14,715 issuers.

High Returns

Since P2P financing typically involves lending to borrowers who may not qualify for traditional loans—such as individuals with lower credit scores or small businesses—lenders are offered higher interest rates to compensate for the increased risk. However, this risk is also mitigated. P2P platforms provide a diverse selection of loans across different sectors and borrower profiles, enabling investors to diversify their portfolios. This diversification helps reduce risks while still delivering attractive returns.

Asset Liquidity

Asset liquidity is a crucial factor in making investment decisions, as it indicates how easily you can convert your investments into cash.

For example, bonds are typically held for long periods, often up to 30 years. In contrast, P2P loan durations are much shorter, ranging from 3 months to 36 months. When considering the stock market, stocks are highly liquid, but there’s always the risk of having to sell them at a loss, which could mean realising losses instead of locking in profits.

Conclusion

In conclusion, asset liquidity plays a vital role in investment decisions, offering investors the flexibility to access cash when needed. While traditional investments like bonds require long-term commitments, P2P financing offers shorter loan periods, giving investors quicker access to their funds. On the other hand, while stocks provide high liquidity, the potential for selling at a loss remains a risk. Therefore, understanding liquidity and its impact on your investment strategy is essential for making informed decisions and balancing risk with potential returns.

Interested to learn more about our P2P Financing Platform?

*The information provided in this article is based on the current tax laws and regulations at the time of publication. As tax laws and deadlines may change, it is advisable to consult with the Inland Revenue Board of Malaysia (LHDN) or a professional tax advisor for the most up-to-date and accurate information regarding your specific circumstances.

Interest rates play a crucial role in shaping investment decisions, and in a high-interest environment, investors often rethink their strategies. With traditional savings and fixed-income investments offering higher returns, some may wonder: Is P2P financing still a worthwhile investment?

While rising interest rates can impact borrower demand and default risks, peer-to-peer (P2P) financing remains an attractive option for those looking to diversify their portfolios. Here’s why it still holds potential and what investors should consider.

How High Interest Rates Affect P2P Financing

1. Higher Borrowing Costs for Businesses

When central banks raise interest rates, borrowing becomes more expensive for businesses. This can lead to a decline in loan demand, but for many small and medium enterprises (SMEs) that struggle to secure bank loans, P2P financing remains a vital funding source. 

For instance, ​In Singapore, the average SME business loan interest rate spiked to 8.16% per annum in 2023, the highest in a decade, accompanied by a 42% reduction in average loan quantum to S$130,000 (approximately RM441,480) from S$224,000 (approximately RM760,704) in 2021. ​

In Malaysia, peer-to-peer (P2P) financing platforms have emerged as vital funding sources for these businesses, offering alternative solutions to bridge financing gaps. As of June 2024, P2P platforms successfully raised close to RM377 million, benefiting over 1,100 SMEs.

2. Potential for Higher Returns

 In a high-interest environment, peer-to-peer (P2P) financing platforms in Malaysia have demonstrated the potential for attractive investor returns. For instance, during periods of lower central bank rates, some platforms reported investor returns ranging from 10% to 15% per annum.  As interest rates rise, P2P platforms may adjust their lending rates accordingly, which could lead to changes in investor returns.

 It’s important to note that while higher interest rates can enhance potential returns, they may also influence borrower behaviour and credit risk.

3. Increased Default Risk

​In Malaysia, peer-to-peer (P2P) financing platforms have experienced varying default rates over the years. By 2020, amid the COVID-19 pandemic, some platforms reported default rates of 3% and 2.5% per annum, respectively.These figures were considered reasonably low given the economic challenges faced during that period.

​During the COVID-19 pandemic, CapBay also maintained a 0% default rate on its P2P financing platform. This achievement underscores CapBay’s robust risk management and advanced credit scoring systems, which ensured investor interests were protected during challenging economic times. While strong risk controls can help mitigate losses, default risks remain inherent in P2P financing and may vary over time.

Why P2P Financing Remains a Strong Investment Option

Portfolio Diversification

​Integrating peer-to-peer (P2P) financing into an investment portfolio offers a strategic avenue for diversification beyond traditional assets like stocks and bonds. By allocating funds across various asset classes, investors can mitigate overall portfolio risk, as different investments may respond uniquely to market fluctuations.​

​The global peer-to-peer (P2P) financing market has experienced significant growth, valued at approximately RM281 billion in 2019 and projected to surpass RM2.4 trillion by 2027, reflecting an annual growth rate of 30%. This expansion underscores the increasing recognition of P2P financing as a viable component of a diversified investment strategy.​

Competitive Yields Compared to Traditional Investments

P2P investments often provide attractive risk-adjusted returns, even amidst rising interest rates. While traditional bank deposits or government bonds may offer lower real returns after accounting for inflation, P2P financing can yield higher returns due to the premium associated with lending to underserved markets. For instance, in Malaysia, P2P financing platforms have reported returns exceeding those of conventional savings instruments, though specific rates vary by platform and risk profile.

Opportunities in Niche Markets

SMEs play a crucial role in shaping the Malaysian economy, much like in many other countries. Despite their prevalence, many SMEs encounter challenges in accessing traditional financing due to stringent requirements and limited credit histories.

As of 2024, P2P financing, equity crowdfunding (ECF), and venture capital/private equity (VC/PE), collectively raised RM4.1 billion in 2024, reflecting a 7.1% growth from the previous year. Additionally, the Malaysia Co-Investment Fund (MyCIF) has co-invested RM1.19 billion in over 9,000 micro, small, and medium enterprises (MSMEs), attracting a total of RM4.92 billion in private investments, bringing the overall funds raised with MyCIF’s support to RM6.11 billion.

Key Considerations Before Investing

Evaluate Borrower Credit Profiles: Choose platforms that conduct rigorous risk assessments.

Diversify Your Investments: Spread your capital across multiple loans to reduce default risk.

Understand Platform Policies: Different platforms have varying risk mitigation strategies, such as reserve funds or buyback guarantees.

Conclusion

Even in a high-interest environment, P2P financing in Malaysia remains one of the many options available for those looking to diversify and earn competitive returns. However, as with any investment, returns are not guaranteed, and investors should carefully assess the risks involved, diversify their portfolios, and stay informed about market trends.

Interested to learn more about our P2P Investment Platform?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

In today’s dynamic financial world, finding the right balance between growth, security, and liquidity can be challenging. Whether you’re an investor looking for steady, risk-mitigated returns or a business seeking flexible financing, the right solution can make all the difference.

Introducing CapBay Assure Notes—an innovative investment solution designed to offer stable, predictable returns while helping businesses unlock working capital with ease. Backed by a robust, technology-driven financing ecosystem, Assure Notes provides investors with access to institutional-grade opportunities while ensuring businesses receive the liquidity they need to grow and thrive.

But what exactly makes Assure Notes a game-changer? Let’s explore how they work and why they could be the perfect solution for your financial growth.

What Are Assure Notes?

Assure Notes are a secure investment instrument designed to provide consistent returns while mitigating risks. Unlike traditional investment options, these notes are backed by CapBay’s robust financing ecosystem, ensuring a structured and predictable financial growth path for investors.

Assure Notes work by leveraging a diversified pool of financing opportunities, ensuring that investor funds are allocated strategically across multiple low-risk assets. This provides a well-balanced mix of capital preservation and attractive yield generation, making them a preferred choice for both conservative and growth-focused investors.

Key Benefits of Assure Notes

Stable & Predictable Returns 

 Investors enjoy competitive, fixed returns, ensuring steady financial growth without the unpredictability of stock markets.

Risk Mitigation

Assure Notes are structured with enhanced risk controls, backed by underlying assets and sound financing strategies. The diversification of funds across multiple financing deals further minimises exposure to any single risk factor.

Diversification Opportunities

Investors can expand their portfolio beyond conventional assets, reducing market volatility risks and enhancing overall portfolio resilience.

Hassle-Free Investment Process  

CapBay ensures a seamless experience by handling risk assessment, financing structuring, and investment management, allowing investors to focus on their financial goals.

Regulated & Transparent 

 CapBay operates within a well-regulated environment, ensuring transparency, security, and compliance with industry standards.

How Assure Notes Empower Businesses

For businesses, Assure Notes serve as a crucial funding avenue, providing capital without the limitations of traditional financing. By leveraging CapBay’s financing ecosystem, businesses can:

Unlock working capital efficiently – With access to immediate liquidity, businesses can maintain operational efficiency and sustain growth.

Ensure steady cash flow for operations – Unlike conventional bank loans, Assure Notes provide businesses with faster, more flexible funding solutions tailored to their needs.

Scale their business with flexible funding solutions – Businesses can access customised financing based on their revenue cycles and project requirements.

Avoid lengthy approval processes – Traditional bank loans often require extensive documentation and long approval times, whereas Assure Notes streamline funding with a technology-driven approach.

Enhance supplier relationships – With a steady source of working capital, businesses can make timely payments to suppliers, improving credibility and strengthening supply chain stability.

Why CapBay?

CapBay is a multi-award-winning fintech platform specialising in supply chain financing and alternative investments. Our tech-driven, well-regulated ecosystem ensures security, efficiency, and maximum financial potential for both investors and businesses.

With AI-driven risk assessment, we leverage advanced data analytics to minimise risks and enhance investor protection. Our end-to-end investment management covers due diligence, fund disbursement, and collection, providing a seamless, hands-off experience.

Investors benefit from a user-friendly digital platform with real-time portfolio monitoring for full transparency. With a proven track record in successful financing solutions, CapBay is a trusted leader in the alternative investment space, offering stability, security, and growth opportunities.

Join the Future of Financial Growth

Assure Notes are more than just an investment—they are a strategic step towards unlocking new financial possibilities. Whether you’re an investor seeking stable returns or a business looking for innovative funding solutions, CapBay’s Assure Notes provide the perfect balance of growth and security.

Capitalise on this opportunity to grow your wealth with confidence. Explore Assure Notes with CapBay today and take control of your financial future.

Interested to learn more about CapBay Assure Notes?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

Investing in the financial markets may seem intimidating, but it can also be one of the most rewarding aspects of managing your finances. While market downturns can be unsettling, investing is one of the few ways to outpace inflation and increase your purchasing power over time. Simply relying on a savings account won’t create wealth. 

If you’re someone who’s thinking about starting to invest in 2025, you’re in the right place. Investing doesn’t have to be a daunting task, and with the right knowledge and strategy, it can become a crucial step toward financial independence. It’s never too late to begin, and 2025 offers a great starting point. Whether you’re hoping to build long-term wealth, save for a major life milestone like buying a home, or simply diversify your financial portfolio, now is the time to take action. The earlier you start investing, the more time you give your money to grow.

The “Why” of Investing

Before investing a single penny, it’s essential to understand why investing is such a powerful tool for improving financial well-being. Money represents freedom, time, and happiness. While we need it for essentials like shelter and food, it also enables us to enjoy experiences and things that bring joy. Every dollar spent reflects time worked to earn it, so wasting money on things that don’t add value is essentially wasting time. That’s why it’s important to focus spending on what matters and save for future value.

Figure 1: Investment Returns vs inflation

However, money in a savings account loses value over time due to inflation. The cost of living rises, meaning the same dollar buys less. Saving alone isn’t enough—investing grows wealth, providing the freedom to stop trading time for money when investments can cover living expenses. Understanding this concept is key, but a solid investment plan is crucial for success.

According to a recent investor survey, 52% of respondents have maintained their investment habits and volumes despite inflation. Meanwhile, 21% increased their investments this year. On the other hand, 24% reduced their portfolios, and 3% are not investing at all. The results indicate that some investors are investing more to offset inflation’s impact, while others have fewer opportunities to invest due to rising costs and reduced disposable income.

Figure 2: Investment Habit affect survey

According to a recent survey by PeerBerry, many investors view P2P loans (29%), ETFs (20%), stocks (14%), and real estate (13%) as offering the most attractive balance between risk and return. Notably, 21% of respondents reported avoiding any losses over the past year. While some investors encountered setbacks with P2P loans, nearly half (48%) of those surveyed highlighted P2P loans as their most profitable investments.

Figure 3: Investment Type Loss Analysis Survey

Figure 4: Investment Type Yielding Highest Profit Analysis survey

Decide How Much to Invest

When deciding how much to invest, it’s essential to start with the basics: understanding your financial goals, risk tolerance, and investment time horizon. Clear goals help guide your investment choices, ensuring they align with personal objectives such as retirement, home renovations, or funding education. Understanding your risk tolerance is key to selecting the right asset mix, balancing potential returns with acceptable levels of risk.

Diversification is a core strategy for managing investment risk. By spreading investments across different asset classes, sectors, and regions, you reduce the impact of poor performance in any single area on your overall portfolio. Various investment accounts offer distinct advantages and should be chosen based on your financial goals and tax situation.

Understand Your Investment Options

Bonds 

Bonds are commonly used by investors to generate a steady income stream. While they offer lower returns compared to stocks, they come with less risk. Bonds typically experience less volatility than stocks, making them an excellent option for stabilising a portfolio that includes higher-risk, high-return investments.

Stocks

A stock represents a share of ownership in a company, also referred to as equity. Stocks are bought at a share price, which can vary significantly, ranging from just a few dollars to several thousand, depending on the company.

Mutual Funds

A mutual fund is a pooled investment that combines various stocks, bonds, or other assets, allowing investors to diversify without selecting individual securities. This diversification generally makes mutual funds less risky than individual stocks. Some mutual funds are actively managed by professionals, while index funds— a type of mutual fund— track specific market indices like the S&P 500. Index funds typically have lower fees due to the absence of active management.

Alternative Investment

Alternative investments are assets beyond traditional categories like stocks, bonds, and cash. These include real estate, commodities, hedge funds, private equity, and the growing area of peer-to-peer (P2P) investments. While hedge funds and private equity can yield substantial returns, they often require significant initial capital and are typically targeted at ultra-wealthy investors, limiting accessibility for the average individual. Similarly, commodities, though lucrative during certain market conditions, are highly volatile due to unpredictable geopolitical risks and fluctuating supply and demand dynamics.

In contrast, P2P investments stand out as a more accessible and balanced alternative. Also known as P2P loans, they allow individuals to lend directly to borrowers or invest in small businesses, bypassing traditional financial institutions. With potential net returns of 8% to 12%, P2P investments often outperform traditional savings accounts or bonds. Their lower entry requirements make them suitable for smaller investors, offering an approachable way to diversify a portfolio. When carefully managed, P2P investments can provide a unique blend of accessibility, risk management, and rewarding returns, making them a compelling choice among alternative investment options.

The Bottom Line

Starting your investment journey is a rewarding step toward financial independence, but staying on track is key. Avoid common mistakes, stick to a long-term strategy, and keep learning. Whether you’re educating yourself through articles or working with a trusted advisor, the most important thing is to take that first step. Your future self will thank you.

Interested to learn more about our P2P financing Platform?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

In financial planning and investment, two often-confused terms, risk tolerance and risk capacity, actually refer to different aspects of managing risk. Risk tolerance is an individual’s comfort level with the ups and downs of investing, while risk capacity is the objective ability to take on financial risk without jeopardising essential goals.

Investors approach risk in varying ways. Some actively pursue high-risk investments, motivated by the potential for substantial returns, while others prefer to reduce risk, focusing on safeguarding their assets. Recognising where you fall on this spectrum, whether as a risk seeker or a risk mitigator, is crucial for building an investment strategy that reflects both your financial objectives and your comfort with uncertainty.

When adjusting your investment strategy for higher returns, it’s important to consider how you’ll feel during market volatility. Investments generally fall into two categories: high-risk, high-reward assets (stocks, cryptocurrencies) and low-risk, low-reward assets (bonds, savings accounts). Balancing risk with your financial goals and risk tolerance is key.

Investors with a higher risk tolerance may allocate more to assets like peer-to-peer (P2P) lending, which offers higher returns but comes with greater volatility and credit risk. While riskier, P2P lending can be highly rewarding for those managing their exposure effectively.

Know How Much Risk You Can Afford

Unlike your comfort with taking risks, your ability to handle them can change based on your financial situation. While comfort is personal, financial ability depends on an objective look at several factors, including:

Liquidity Needs

A person’s ability to take on risk usually decreases as the need for cash for a specific goal gets closer. The nearer they are to needing the money, the less it makes sense to risk it by investing in stocks or bonds that could be at a low point when sold.

Let’s have a look at this example for a clearer understanding,

Imagine Sarah has RM50,000 saved, and she plans to use this money to buy a car in two years. If she invests this RM50,000 in stocks, there’s a chance the market could dip right before she needs the money. Let’s break down the potential outcomes:

If the market increases by 10% in those two years: Sarah’s investment could grow to around RM55,000, which would give her a nice boost towards her car purchase.

If the market decreases by 10% in those two years: Sarah’s investment would drop to RM45,000, which is RM5,000 less than she started with. She would then need to save more or delay her car purchase.

In Sarah’s case, investing in a P2P (peer-to-peer) financing platform could offer a more predictable return compared to the stock market. However, she has to choose a reputable platform, opt in for lower risk investments and diversify to reduce risk.

Time Horizon

Your time horizon plays a big role in your ability to take on risk. If you have several years before you need the money, you can handle more risk because you have time to recover from market ups and downs. 

Let’s look at another example where Sara is planning to save for retirement, which is 20 years away.

Time Horizon: 20 years 

Risk Tolerance: With many years to go, she can take on more risk because she has time to recover from market fluctuations.

Investment Choice: Sarah invests in growth stocks or high-yield bonds, aiming for higher returns.

Potential Outcome: If the market performs well, her investment grows significantly. The risk of market downturns is higher, but with a long time horizon, she can recover from these fluctuations over time.

Failing to Diversify Investments

Risk plays an important role in how people make investment choices. It affects the types of investments they select and how they manage their portfolios. Research shows that investors who are willing to take on more risk usually put about 60-70% of their money in stocks or other high-risk investments. On the other hand, those who are more risk-averse tend to invest 80-90% in safer options like bonds and savings accounts​.

Behavioural biases, such as loss aversion and overconfidence, also play a key role in how investors approach risk. These biases can cause individuals to misjudge risk, either underestimating potential downsides or overestimating the probability of gains. Studies show that investors with different risk perceptions, shaped by their experiences and demographics, approach investment decisions differently, influencing the overall portfolio composition​.

Understanding the relationship between risk and investment decision-making is crucial for developing an investment strategy tailored to individual financial goals and time horizons. Risk management techniques, along with a clear understanding of risk appetite, can help investors optimise returns while mitigating unnecessary exposure to market uncertainties​.

Interested to learn more about our P2P Investment Platform?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

Investing for the first time can be exciting, but it also comes with challenges. Without proper knowledge and preparation, new investors can easily fall into common traps that could harm their financial goals. Falling prey to the same errors and making mistakes can cost a good bit of money over time if their mistakes aren’t addressed and rectified.

Let’s take a look at some common mistakes first-time investors make and some tips to avoid them.

Jumping In Without a Plan

One of the biggest mistakes is investing without a clear strategy. First-time investors may dive into the market based on trends, hype, or fear of missing out (FOMO).

Why It’s Risky:

• Without goals, you might invest in assets that don’t align with your financial needs.
• Lack of research can lead to impulsive decisions.

How to Avoid It:

• Define your investment goals: Are you saving for retirement, a home, or a vacation?
• Assess your risk tolerance and time horizon specially while investing in P2P investment platforms in Malaysia.

Failing to Diversify Investments

Putting all your money into a few notes or one type of issuer is a common mistake.

Why It’s Risky:

• If an issuer defaults, a concentrated portfolio can suffer significant losses.
• Lack of diversification leaves your investments exposed to higher risks from the market. Let’s take P2P Investment platforms as an example – On P2P Investment platforms, diversification is key. Instead of investing heavily in just one borrower or loan, spread your investments across different loans, credit grades, and even platforms.

How to Avoid It:

• Invest small amounts in multiple notes rather than a large amount in just one.
• You can also choose the auto-investment feature to make sure your funds are automatically spread across a diverse range of loans, helping to maintain a balanced portfolio with minimal effort on your part.

Not Reinvesting Returns

Letting your earnings sit idle in your account means you’re missing out on potential growth.

Why It’s Risky:

• Idle funds do not generate additional returns, reducing the overall performance of your portfolio.

How to Avoid It:

• Regularly reinvest returns into new notes to leverage the power of compounding.
• Use auto-invest tools to ensure your funds are always working for you.

Overlooking Fees and Costs

Fees can eat into your returns, especially if you’re unaware of them upfront.

Why It’s Risky:

• Platform fees, loan servicing fees, or withdrawal charges can reduce net earnings.
• Some platforms charge additional fees for secondary market transactions.

How to Avoid It:

• Understand the fee structure of the platform before investing.
• Compare platforms to find those with competitive and transparent pricing.

Ignoring Economic Trends

Economic changes, such as interest rate hikes or recessions, can impact issuers’ ability to repay loans.

Why It’s Risky:

• You may face higher default rates during economic downturns.
• Certain sectors may become riskier in unstable markets.

How to Avoid It:

• Stay informed about economic trends and adjust your strategy accordingly.
• During uncertain times, prioritise lower-risk loans or shorter-term investments such as P2P Investment as they offer comparatively short term notes.

The Bottom Line

Investing for the first time can be an exciting journey, but it’s important to approach it with caution and knowledge. By being aware of common mistakes—such as failing to diversify, ignoring risk management, or chasing high returns—you can protect your investments and set yourself up for long-term success. Remember to have a clear strategy, do your research, and make informed decisions. P2P Investment, like any other investment, comes with its own set of risks and rewards, but with careful planning and a thoughtful approach, it can be a valuable addition to your portfolio. Stay patient, diversify your investments, and continue learning as you grow as an investor.

Interested to learn more about our P2P Investment Platform?

*This article is not meant to recommend CapBay products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

A small amount of money can turn into a large sum over time thanks to the force of compounding. Benjamin Franklin described it best when he said, “Money makes money. And the money that money makes, makes money”. Besides that, compounding is also sometimes referred to as “magic” or “an investor’s best friend” within the financial community. 

Compounding investments’ exponential growth happens because the investment generates returns from both its initial principal and the cumulative earnings from previous periods. By fully  comprehending compounding as a beginner, you will be able to experience the true potential of investing and set goals for how that money can increase over time.

Get familiar with the Concept of Compound Interest

The wonder of compounding has the power to turn your initial investment into a consistent revenue generator.  It requires three components to succeed: the initial capital being invested, the reinvestment of returns, and most importantly – time. The longer you maintain your investments, the more powerful the earning ability of the initial investment. As the name suggests, compounding interest is a snowball effect that continues to grow at a faster pace over time.

Regardless of your financial goals, the sheer intensity of compounding should inspire a feeling of urgency in your investing plan. Starting your investments early can make a huge difference in your net worth due to the power of compound interest. For instance, if you delay investing for just nine years, and your average investments generate an  8% annual rate of return, your investments may only have half the value as it would have if you started investing now. Therefore, it’s important to start investing as early as possible to take advantage of the potential for long-term growth.. 

Let’s use an example to illustrate 

Suppose you invest RM15,000 at an annual interest rate of 8%. After one year, your investment will be worth RM16,200, giving you RM1,200 as your profit. If the profits are then reinvested for another year and continue to earn 8% p.a. (RM1,200 x 0.08 = RM96), your investment will grow up to RM17,496(RM15,000 + RM1,200 + RM96 + RM1,200 ) at the end of the second year.

The RM1,200 return that you have invested to work with the capital will earn you an extra RM96(RM1,200 x 0.08 = RM96) next year. This additional interest earned on interest is seen as the effects of compounding interest. While this amount may seem very small right now, over the years this sum could be larger than the initial principal amount itself. In fact, in this example, your total portfolio would be worth RM32,384, with the proportion of interest returns being larger than the initial RM15,000 investment within 10 years. However, it is important to note that this assumes a constant rate of return without any losses.  

Utilising Compound Interest to Maximise Your Financial Growth

One important factor to consider is the compounding rate of your account. This refers to how often the interest on your account is calculated and added to your balance. The more frequently interest is compounded, the more quickly your money will grow.

Time is also a crucial factor when it comes to compound interest. The longer you leave your money to grow, the more it will benefit from compounding. This is why it’s so important to start putting aside funds for investments, especially for longer-term goals such as retirement as early as possible. By giving your money more time to grow, you’ll be able to make the most out of your money in the long run. Compound interest can help your investment savings grow in size, but it requires discipline, patience, and a long-term perspective.

However, it is important to note that when it comes to debt, compound interest can work against you. The longer you take to pay off your debt, the more interest you’ll accumulate over time. This means you’ll end up paying even more in the long run. To minimise the impact of compound interest on your debt, it’s important to pay it off as quickly as possible. Whether you’re dealing with credit card debt, loans, or other forms of debt, making extra payments or paying more than the minimum amount can help you pay off your debt faster and save money on interest payments in the long run.

Start Compounding your Investments with CapBay P2P’s Auto Invest

In general, automated investment systems enable investors to automatically distribute their funds across multiple investments without requiring them to manually pick and choose them. There are usually parameters that are selected up front, which will then govern what the appropriate investments are before executing them accordingly.

CapBay’s Auto Invest allows our investor to select a profile based on their risk tolerance. Based on this, our Auto Invest will then automatically allocate the investor’s funds into a highly diversified portfolio of P2P investment notes with average net returns of 8-10% p.a.. Besides that, the system also automatically re-invests any repaid funds while active, allowing for a seamless investing experience. This means that investors are able to sit back and relax, while CapBay P2P’s Auto Invest allows for maximum diversification and compounding interest as proceeds are continually re-invested.

Begin your investing journey with CapBay today!

*This article is not meant to recommend CapBay P2P products or be used as a tool to make any investment or financial decisions. Product recommendations must be independently evaluated before you invest. Any product recommendation by CapBay must not be regarded as financial planning or financial advice.

• P2P fundraising saw a 38% increase in 2022, raising RM1.58 billion across 24,455 campaigns as announced in Securities Commission Malaysia Annual Report 2022
• CapBay played a role in the growth, having finance RM1 for every RM4 raised through P2P financing in 2022
• Government reinforces commitment to bridging the financing gap through MyCIF and DIGID initiatives

KUALA LUMPUR, 27th March 2023 – Peer-to-peer (P2P) financing in Malaysia has continued to experience strong growth, with a 38% increase in financing amount for a total of RM1.58 billion across 24,455 campaigns in 2022 as reported in Securities Commission Malaysia’s recently announced Annual Report 2022. This comes on the back of a surge in the number of issuers with an 88% increase, highlighting the strength of alternative financing as a viable source of funding for the underbanked Small and Medium Enterprises (SME) segment.

Continued headroom for alternative financing growth

While adoption rate continues to improve, there are still opportunities for alternative financing such as equity crowdfunding (ECF) and P2P financing as the penetration rate in Malaysia is still relatively low. In 2020, ECF and P2P only contributed <1% of the economy when compared to traditional financing at around 88%, lagging behind neighbouring countries such as Indonesia and Singapore, signalling potential for future growth.

CapBay’s Co-founder and CEO, Ang Xing Xian, concurs that the growth opportunities within P2P financing has not reached its full growth potential. “The P2P financing industry has been vital in the Covid-19 recovery, extending a lifeline to businesses who require urgent working capital assistance. As we move towards a post-pandemic economy, the industry’s continued growth is a testament to the viability of P2P financing. CapBay is proud to have played a role in the growth, having financed RM1 for every RM4 raised through P2P financing in 2022, demonstrating our commitment to supporting underbanked SMEs.”

Ang Xing Xian, Co-Founder and CEO of CapBay

P2P financing campaigns outside the Klang Valley has doubled

Further growth opportunities exist for niche sectors such as agriculture, real estate, and healthcare that have shown impressive growth in 2022, but still lag behind sectors such as wholesale and retail trade; repair of motor vehicles and motorcycles that represented over 58% of financing raised. Furthermore, while the number of campaigns outside the Klang Valley has doubled, 54% of issuers are still located within Kuala Lumpur and Selangor.

In 2022, one of the most popular P2P financing products was invoice financing at 21% of the total investment notes, which is typically a lower risk product. “CapBay’s focus is in the lower risk segment, having contributed over 2,200 invoice financing notes in 2022 alone. We remain committed to maintaining prudent risk management practices, and will continue to prioritise lower risk products to safeguard both our investors and issuers,” said Xing Xian.

Government initiatives reflect commitment to developing alternative financing

Recognising the key role of alternative financing, the Government has continued initiatives to bridge the financing gap. Within Budget 2023, the Government committed RM40 million to the Malaysia Co-Investment Fund (MyCIF). According to the recent MyCIF report, the funds raised by P2P and ECF operators have increased sixfold since 2018 with the support of MyCIF. MyCIF will also introduce new initiatives to increase their co-investment ratio into ESG (environmental, social, governance) related campaigns and extend existing initiatives for the agriculture sector.

The Digital Innovation Fund (DIGID) was also introduced in Budget 2023 to co-fund projects that demonstrate the use of innovative technology within the Malaysian capital market. This initiative would assist in developing new sources of growth, process enhancements, and improve competitiveness through the use of new technologies.