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.

In Malaysia, Peer-to-peer (P2P) financing has become increasingly popular within the alternative investment space. Since the Securities Commission Malaysia (SC) started granting P2P licences in 2016, the P2P financing sector has been rapidly expanding, with the total financing amount raised doubling in 2021 when compared to the previous year. This represents remarkable growth as retail investors become more familiar with P2P financing as a viable investment alternative to equities and fixed deposits.

However while P2P financing is attractive as it generates high returns, as with all investments there are still risks involved that investors should be aware of – specifically default risk. While CapBay P2P represents a leading P2P platform with one of the lowest default rates at <0.1% across over RM880 million in financing (as at time of writing), it is still important for investors to fully understand both the causes of default risks and how it affects their investment portfolio to have the confidence to invest with P2P financing. . 

What are defaults? 

Similar to bank loans, P2P financing can be thought of as another short term financing product, where the borrower represents the company in need of financing, and the lenders represent the crowdfunders and in this particular case, the investors. With supply chain financing, the loans are generally tied to invoices that details the nature of the work done, the owed amount, and the repayment period. 

Occasionally, a borrower may miss their repayments by a small timeframe due to administrative issues such as public holidays or repayments made on weekends. Alternatively, there could also be more operational issues such as late repayments made to the lender by their debtors/buyers, which means they are unable to repay the P2P lenders. These cases would be considered late repayments rather than defaults. For CapBay P2P, we will provide reminders and make contact with the lenders even before the stipulated repayment date to ensure timely repayment for our investors. However, it is important to note that our investors will continue to accrue daily interest on late repayment notes until the actual repayment date (that may be past the expected repayment date). In this case, while late repayments may provide some concern to investors, they are not penalised for the delayed repayments, and instead will continue to earn returns. However, an extended period of non-repayments may eventually lead to signs of an impending default.  

Defaults occur when repayments are not made within a stipulated timeframe past the agreed repayment date. For example, a default may be declared when the borrower has yet to have made the repayment 90 days past the repayment date of the loan. In this case, the outstanding amount of the loan and any interest owed would be considered defaulted. Circumstances that may cause defaults include insolvency, non-repayment from the borrower’s debtor/counterparty, loss of a business licence, non-performance of a contract, or a direct refusal to make repayments for any reasons. 

Thus, it can be seen that default risks are related to the repayment ability and credit worthiness of the borrower. The safer the borrower, the lower the risk of defaults, and hence the lower the overall risk undertaken by the lenders/investors. 

Does this mean any defaulted amounts are lost? 

While defaults may seem like a complete loss for the lenders, there are still other avenues that may be pursued to recover any outstanding defaulted amounts. For CapBay P2P, CapBay will act on behalf of the investors to formal recover actions such as restructuring or legal proceedings (enforcement on collaterals or securities through a Court order, or through a recovery of debt action in Court). In Invoice Financing, which CapBay specialises in, we will also initiate recovery action against the issuer’s buyer or debtors for the invoices that have been factored to us.

Any amounts recovered will then be redistributed to our investors on a pro-rata basis, which is according to the proportion of the invested amount of each investor on the defaulted note. Thus, while defaults are a genuine risk to our investors, there is still hope to recover defaulted amounts. 

I’ve had a default, how does this affect me and what should I do? 

As a P2P investor, in the unfortunate event of a default there may be principal loss within your investment portfolio. This means that the initial investment amount may have been lost due to the non-repayment. However, as with all investments, we have to consider this from a big picture perspective. While any principal loss may cause unease, the diversification of an investment portfolio will dictate the actual impact on an investor’s portfolio. For example, if an investor with a well-diversified portfolio of RM50,000 faces defaults, this may only affect up to 2% of their portfolio as their funds are split into more than 50 notes. Considering that CapBay P2P offers 8% net returns per annum, this would mean that in a given year, an investor may not even incur any principal loss, but would instead receive slightly lower returns at 6% per annum.  

It is important to also recognise that a default faced by a single borrower does not reflect the repayment ability of other borrowers. This is because defaults occur due to an individual borrower’s inability to make their repayments. In most cases, a single default from an issuer wouldn’t necessarily mean that other defaults are bound to happen, as different issuers have different financial strengths and situations. At CapBay P2P, we also ensure exposures are controlled at the borrower level, where our investors are not overexposed to a single Issuer. This is a part of our risk management strategies and reflects how we’ve been able to maintain a default risk of 0% throughout the COVID-19 pandemic period, only having declared our first defaults at less than 0.1% of our total financing amount after the reopening of the economy as a testament to the strength of our credit model. 

While it may be tempting to stop all investments with a P2P financing platform after incurring a single default, it is also important to recognise the alternatives. Withdrawing your entire portfolio after a default will solidify any losses incurred, whereas the alternative of maintaining your investment portfolio may allow an investor to recoup their initial losses. With the example above, given a net return of 8%, it may only take 3 – 4 months to recover potential losses from the defaults, with the chance of further recovered amounts. Similar to the equities market that saw a significant downturn in 2022 where the S&P 500 saw an 18% decline, time in the market is not to be underestimated as the longer-term performance is still in the positive. Thus, the length of the investment timeframe matters, where returns are able to continue to compound to offset any losses incurred in the short term. 

In conclusion 

In summary, while defaults are a very real risk faced when investing in P2P financing, its impacts can be mitigated by having a diversified investment portfolio and allowing enough time for the returns to compound. Have a look on our article Top 5 reasons why you should diversify your investments with CapBay P2P to learn few more reasons of diversification. It is also imperative to truly understand the causes of the defaults in order to make the right decision in response. The default rate of any given P2P platform should be taken into account and the net returns expected should be measured against the defaults. 

As with all investments, it is important for potential investors to fully understand the risks involved in order to manage their risk tolerance levels as a trade off for the returns offered. CapBay P2P continues to pride itself on being a P2P platform that provides high quality investment notes to our investors, maintaining a default rate of <0.1% throughout these periods of volatility. To kick start your investment journey with CapBay, feel free to reach us.

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.

*All statistics are accurate as at the time of writing.

Have you ever heard of an investment product that provides positive returns without having any risk involved at all? Well, we all know the answer – it’s a big “NO”. Unfortunately, every investment platform and product comes with its own risks, as returns earned are a reward for risk borne. The returns for investment assets such as stocks and equities fluctuate every day, with a mix of good and bad days accumulating to form the returns over time. However, investment products with fixed returns such as fixed deposits, bonds, and Peer-to-Peer financing (P2P) help to mitigate the risk of volatile returns.

Peer-to-peer financing is a type of direct lending to individuals or companies, where a platform acts as an intermediary to facilitate the lending and repayments. P2P financing is usually conducted online via highly specialised platforms. Through digital platforms registered with the Securities Commission Malaysia (SC), P2P financing allows investors to directly lend funds to SMEs and companies, in order to free up cash flow and working capital issues.

Both secured and unsecured loans are usually offered through P2P platforms, with products varying based on the borrowers’ needs. P2P financing platforms may have lower credit thresholds than traditional banks, allowing lenders to obtain financing where they may not have been able to through traditional methods. However, this may also indicate a higher risk, as P2P platforms may be more lenient. Some platforms successfully take this into account by evaluating loan applicants with alternative sources of data that may not be assessed by traditional banks to get an even more accurate gauge of a lender’s repayment ability.

However, despite the risk factors and the relative recency of P2P platforms, the P2P financing industry has demonstrated its resilience and reliability as both an alternative financing and an investing platform.

As of December 2021, approximately RM2.3 billion had been raised through over 30,000 successful campaigns and 4,200 issuers. More than half (54%) of the investors were under the age of 35, with retail investors accounting for 90% of the amount invested. This represented an increase in financing of RM1.14 billion in 2021, which was more than double the amount when compared to the year before. (Capital Markets, 2022)

As P2P financing continues to grow in Malaysia, we have identified the risks and proposed potential solutions in order to assist Malaysians to safely and successfully invest via P2P. Let’s dig deeper and find out how we can overcome the risks and maximise our returns associated with Peer-to-peer financing platforms. 

1. Risk Involved: Losing principal invested

While Peer-to-peer lending platforms generally have fixed returns, there still exists the risk of principal loss via defaults. A default occurs when a borrower is not able to make their repayments on their loans, causing investors to potentially lose a portion of their invested amounts. 

Proposed Mitigation

The solution to this is quite simple – diversified investments. As the adage goes, we should not have all our eggs in one basket. This means that investors should split their funds into different businesses and industries, and in the case of P2P, it’s actually investing into a variety of investment notes. In this scenario, a default will have a lessened impact on an investors total portfolio. CapBay has an Auto Invest function that automatically distributes an investor’s funds into 100+ notes. 

2. Risk Involved: Not achieving the expected returns 

While P2P financing usually provides investors with the potential for higher returns than savings accounts or fixed deposits, there may still be a risk of achieving lower returns than expected.

Proposed Mitigation

To ensure that investors receive their targeted returns, it is advisable to stay invested for longer periods of time, such as 2 -3 years. This allows investors to earn compound interest on their returns, as the profit earned can be reinvested. It may also be helpful to have your investments automatically re-allocated, in order to avoid having unutilised cash. CapBay P2P’s Auto Invest function allows investors to take a passive investing approach as the profits earned are automatically reinvested. We also have shorter investment tenures of between 1 – 6 months, that allows for more compounding interest. 

3. Risk Involved: Credit Risk

P2P financing carries credit risk, as the risks borne by investors are tied to the repayment ability of the borrowers. This credit risk may be heightened as applicants for P2P loans may have poorer credit histories that hinders their ability to obtain traditional loans from banks. 

Proposed Mitigation

To avoid this, investors should conduct their own research on the borrower’s profile properly before making an investment. Some platforms will require and conduct strict background checks on their borrowers before providing them with financing. This information will then be made available to investors to aid in the decision making process. CapBay takes pride and put in a lot of effort to ensure a low default rate where it’s currently at less than 0.1% since 2016 inception, reflecting our adherence to our strict credit controls. 

Until recently, the only real option for obtaining a loan was to approach a bank or similar financial institution. Peer-to-Peer financing has made the borrowing process easier for SMEs and other businesses in order to assist with their growth. Similarly, investors can now invest and earn higher returns compared to other types of investments, while controlling the level of risk based on their investment appetite.
Thus, by helping to shed some light on both the risks involved and the solutions to overcome them, we hope that more investors will be well-equipped to maximise their returns with Peer-to-peer financing in Malaysia. CapBay ensures that SMEs and businesses have safe and secure access to financing, while also providing the opportunity for investors to earn reliable and consistent returns.

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.

Since the outbreak of the COVID-19 pandemic, we’ve observed high market volatility due to the uncertainties surrounding economic restrictions in Malaysia. We know investors are actively searching for alternative investments to earn steady returns on their investments. Today, we’ll be talking about how you can consider investing with CapBay Peer-to-Peer (P2P) as a way to diversify your investment portfolio while earning attractive returns.

In short, P2P Financing platforms match businesses directly to investors to obtain financing. You don’t need a middleman like a financial institution to work as an intermediary. It’s a two-way street. Businesses have the opportunity to raise funds for their company and you, as an investor, get to see what you are investing and how much you will get in return.

While a lot of articles talk about the benefits of P2P financing for SMEs, there are also many advantages of being an investor. Read on to find out more:

1. Earn steady and reliable net returns

By investing with CapBay P2P, you can unlock net returns of up to 10% p.a. Of course, like any investment, these returns come at a risk. Remember that when investing on P2P platforms, risk-returns are dependent on the credibility of the Issuers on the platform. This differs from other market-linked investments such as mutual funds and equities where the returns fluctuate according to the performance of the stock market.

2. Robust risk management

Leveraging data and automation, CapBay is able to curate high quality and safer financing notes for investors. Recognising the risks involved, CapBay specializes in providing financing to SMEs backed by blue-chip companies and Government-Linked Companies (GLCs). This allows our investors to invest in much safer SMEs.

3. Passive Investing

In CapBay, we aim to provide a seamless investment experience from account opening till the end. With our Auto Invest feature, you can easily automate your investment across various notes on our platform. All you have to do is select an Auto Invest profile according to your risk appetite and CapBay will take care of the rest. Alternatively, you can also manually invest more in notes that you are confident in. However, it should be highlighted here that diversification does not eliminate or remove all risk in respect of investment.

4. Generate returns on undeployed cash

Another great feature when investing on the CapBay P2P platform is that we ensure your money will truly work for you. CapBay Plus ensures that you continue to generate returns, giving you FD equivalent returns on undeployed cash as long as your Auto Invest profile is enabled.

5. Contribute to the growth of Malaysian SMEs

As you know, P2P is a form of crowdfunding that enables Malaysian SMEs to obtain financing directly from investors. This simplifies the financing process for SMEs while providing alternative investment opportunities with attractive returns for investors. And most Issuers on the platform are made up of (SMEs) which are heavily impacted by the pandemic. By investing in P2P, you can support Malaysian SMEs and improve the economy too! As any Malaysian will say, Malaysia Boleh!

*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.