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.

Peer-to-Peer (P2P) investing is a method of alternative financing that matches businesses directly to investors to obtain finance. P2P investing does not require a middleman such as a financial institution to work as an intermediary. It’s a two-way street where the businesses have the opportunity to raise funds for their company and you, as an investor, get to provide financing to local businesses while gaining attractive returns. 

The CapBay P2P financing platform adopts a transparent policy, boasting attractive net returns from a pool of available investment notes at your disposal. We have made the process of P2P financing easier with customer-friendly approaches, and a seamless approach to investing. Now, you can invest your savings in a trusted platform to earn attractive returns.

Before we tell you more about our P2P platform, let’s learn about how it works.

How Does our P2P Platform Work?

CapBay P2P works great for businesses that need funding and for individuals who are looking for creditworthy alternative investments for their savings. We match both of their needs, turning separate challenges into a win-win opportunity. 

For instance, if an SME requires more capital to run its operation, it can request for financing from the CapBay P2P financing platform. We will then undertake a rigorous assessment to ensure that the SME Issuer (applicant) has a sound financial capacity to repay the financing in due time, assigning them a risk grading in the process. 

Once the SME Issuer’s application is approved, the required financing is crowdfunded from the investors via the CapBay P2P financing platform. We will facilitate the whole crowdfunding process, ensuring that the entire process is seamless. The savings you invest in the platform will be kept in a trust account, to which we won’t have any access to. We will then collect all the invested funds from the crowdfunding exercise and disburse the aggregated amount to the SME Issuer once the target has been met.

Once your investment matures, your principal and returns will be credited back into your CapBay P2P account. The end result is, the business will have its required financing in its time of need, while you earn an attractive return on a short tenure investment in a simple and effective way.

In P2P financing, it is advisable to split your investment into a variety of notes to invest into different businesses. Diversifying your investment across multiple businesses will reduce the impact of defaults on your portfolio.

CapBay P2P will guide you through your entire investment journey and notify you on every investment note so that you can track the progress of your investment at any given time. Whenever a new note is issued, an email will be sent to you to ensure that you are up to date on all the investment offers available.

We aim to make a difference by creating a platform that encourages transparency. Investing with peace of mind and clarity is what we offer to our investors.

So, how do you invest in CapBay P2P Financing platform?

Just follow these 7 simple steps to be a part of the P2P Investing journey.

 7 Easy Steps to Invest in our P2P Platform

1. Get your documents ready before you sign up

• Scanned copy of your Identification Card (IC) (front and back) 
• Mobile number for One-time PIN (OTP) verification
• Details of your bank account
• Bank statement copy

2. Register on the CapBay P2P Financing Platform

• Download the CapBay P2P Invest app on the App Store or Google Play Store or go to http://invest.capbay.com/
• Complete your basic details to create your account
  • Full Name (as per Identification Card / Passport)
  • Email and Mobile verification
  • Password details
  • Banking information
  • Wealth declaration

3. Make an Initial Deposit of at least RM 10,000

You can get started by investing with a minimum portfolio of at least RM 10,000. However, we suggest that you build up your investments to RM 50,000 in order to ensure that you are sufficiently well diversified, allowing us to allocate your funds into a diverse range of investment notes.

To make a deposit, transfer the money from your bank account to our P2P account via bank transfer, internet banking or cheque. As of this time, we do not allow any cash deposits into our platform.

Next, submit a deposit request through the CapBay P2P platform, including the payment receipt as proof of your payment. Once you make the submission, we will approve your deposit within 3 working days.

4. Set up your Auto-Invest Target function

We are the first in the market to introduce Auto Invest functionality to simplify your investment journey. Our Auto Invest function will automatically diversify your investment across various notes within our investment platform.

In the Auto Invest page, you will be able to select your Auto Invest profile that will allocate your portfolio into our programmes. These profiles have allocation – that correspond directly to your risk preferences, allowing you to tailor your investment according to your personal needs. 

Once selected, the  Auto Invest function will allocate your funds with varying limits between our programmes, such as:

• CapBay Select – A carefully curated set of low-risk investment notes with moderate net returns of up to 8% p.a.
• CapBay Diversified – Full range of investment notes with moderate risks and higher net returns of up to 10% p.a.
• CapBay Assure – Our safest notes, delivering net returns of up to 6% p.a. with principal and interest guaranteed via a reserve fund

5. Start Investing

Once you have made your initial deposit and selected an Auto Invest profile, every time a new note is launched, an email notification will be sent to you. You can view the note on the platform by navigating to the New Opportunities page under the Invest Now tab.

• Find out more information about the note by downloading the investment memo 
• Choose to opt-in or opt-out of a note before it launches
• After the investment note launches, your funds will automatically be invested in it, based on our allocation policies
• You can also manually top up your investment on a note up to its funding limit after the Auto Invest allocations for the note has been performed

6. Earn Your Return Once the Investment Matures

• Once the note reaches its maturity, you will earn attractive net returns of up to 10% p.a. (depending on the programme and investment note you choose) on top of your principal. This amount will be credited back to your CapBay P2P account.
• If you wish to withdraw your returns, turn off your Auto Invest by unselecting the profiles once your investment matures. This will ensure that your funds will not be automatically reinvested, and are ready for withdrawal.
• If you do not cash out your investment after it matures, it will automatically be reinvested to provide compounding interest on your investments.

7. Monitor Your Portfolio

Now that you know how to invest, get familiar with the following tabs to keep track of your investment:

• Invest Now Tab – Overview of your cash balance, annual return and loss rate
• Performance Tab – Provides details on how your returns have been calculated
• Portfolio Tab – Gives an overview of the status of your notes

What are the Benefits of Investing with the CapBay P2P?

• Accessible by web platform and mobile app from anywhere, at any time
• Short investment tenure of 1 to 6 months
• Safer alternative investment platform with a <0.1% default rate 
• Personalised service with Relationship Managers providing investor support
• One of the Firsts-in-market Auto Invest programmes 
• Transparent returns with detailed breakdowns of net returns provided upfront to ensure that there are no hidden fees

Conclusion

The CapBay P2P financing platform takes away the complexity of investing. You can invest via your mobile device or browser from the comfort of your home, based on your preference, with customer-centric features that ensure ease of use. Reach out to us if you have any queries. In the meantime, we will continue to post more about our platform on our blogs and social network, so keep connected to learn more exciting stuff about our P2P platform.