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How Peer-to-Peer (P2P) Microfinancing Can Help Small Businesses, The Bedrock of Malaysia’s Economy, Recover Faster
by Tunku Danny Mudzaffar

It is no secret that micro, small and medium enterprises (MSMEs) play a vital role in the Malaysian economy contributing to a significant portion of the country’s output. It is reported that 98.5% of Malaysia’s registered business establishments are MSMEs, according to the Department of Statistics Malaysia. Not to mention, their contribution to the country’s gross domestic product (GDP) sits at 38.9%, equivalent to RM 552.3 billion before COVID-19 struck.

Just six months into the pandemic, the SME Association of Malaysia reported that up to 25% of the nation’s MSMEs were at major risk of closure, resulting in a monumental loss to the country’s economy. One would shudder to think of the families that would suffer from this adverse impact of the pandemic, as micro-business owners and small businesses shut shop, cutting off a large chunk of their income required to sustain themselves. This means that looking after such businesses is no longer just a matter of economical concern but also a means of looking after the most vulnerable communities in the country.

Fast forward one year and the government’s efforts must be applauded as measures have been put in place that has helped millions of struggling businesses to minimize retrenchment and cost-cutting measures that directly affect the B40 and M40 communities. However helpful, it is understandably impossible for the government to reach out to every single business owner out there. A crisis of this magnitude requires private organisations as well to lend a hand in an effort to rebuild Malaysia’s micro-economy – a gap that peer-to-peer (P2P) microfinancing might just be able to fill.

Since Malaysia started regulating the industry in 2016, P2P Financing has been gaining popularity as a seamless way for small businesses to gather the financing they need for working capital. When COVID-19 came about, banks, through the government cash injection such as the Penjana SME Financing Scheme, have provided much needed support required to help Malaysia’s MSMEs stay afloat. While helpful, it is impossible to help many entrepreneurs that had new businesses, some of which could not meet the traditional bank loan criteria. Some of these criteria include the three years worth of operations required to apply for loans along with the painfully long waiting process with tedious paperwork to add. During a crisis, time is a luxury that MSMEs can’t afford, with many newer businesses unable to accumulate three years’ worth of credit score. Here is where P2P microfinancing could play a vital role.

P2P microfinancing is an alternative financing option that can provide outreach to smaller enterprises that banks don’t, or won’t, have access to. This is because we, as a Fintech company, are 100% online. From application, KYC, credit-checking to disbursement of funds, an Investor (lender) is able to use their spare cash to provide financing to MSMEs to help them weather this dire economic situation. This results in a win-win situation for all parties where businesses get much quicker access to their required working capital while Investors are able to see considerable returns over a gradual period of time. That is why, if there was a separate ‘Penjana Alternative Financing Scheme’ available to all alternative financing operators, then platforms such as ourselves may be able to reach MSMEs that banks do not serve.

microLEAP offers both conventional and Islamic financing, where the latter is considerably popular among all communities on our platform, not only Muslims. As ethical investments and Islamic principles go hand in hand, we have many non-Muslims investing in our Shariah-compliant Investment Notes and providing much needed working capital to our MSMEs.

In 2021, microLEAP looks to further expand its numbers of both Investors and Issuers as the need to support local businesses has never been more important. All a business requires to begin the application process to procure financing through microLEAP is to be registered as a Malaysian entity and be in operation for at least six months. From there, a stringent, but relatively quick credit check is done to ensure that the business is eligible to be listed on microLEAP’s platform to start receiving financing, ranging anywhere from RM 1,000 to RM 50,000. At microLEAP, businesses have been able to procure their financing as quickly as 30 minutes upon being hosted, with the average being 2 weeks. This goes to show that fast and secure financing doesn’t require businesses to undergo a strenuous process.

With vaccines already being administered, I’m confident that this year will be a year of recovery – one that will need the utmost support of both public and private bodies to help revive Malaysia’s economy. microLEAP is proud to be part of the solution as an alternative financing option for small businesses to stay afloat.

Link to article here.
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