Reasons Why P2P Financing Is Gaining Popularity Among Investors

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.