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Three Tips on How to Maximize Your Gains Through Peer-to-Peer (P2P) Financing
by Tunku Danny Mudzaffar

For a very long time, investing has been largely labelled as a rich man’s pastime – something only the wealthy and large institutions had access to. Over the years, investing has gradually become more inclusive as strides in technological advancements have allowed platforms to provide access to investment products in a cheaper, quicker, and more efficient manner. This has led to many market intermediaries looking to find relevance in an age where more Do-It-Yourself (DIY) investors are coming into the picture. The by-product of this is that investors need not spend large sums of money to begin their investment journey, with many fintech platforms allowing micro-investments from just a few sen to only RM50. This democratisation of investing has led to the boom of P2P financing / P2P lending seen in many countries throughout the world, including Malaysia.

So, what is P2P Financing? P2P Financing is an alternative financing tool that allows Issuers (borrowers) to obtain financing from Investors (lenders) without having to go through a financial institution. Therefore, it is both an alternative financing product as well as an alternative investment product at the same time. Currently, there are 11 P2P Financing Operators that are regulated by the Securities Commission Malaysia (SC) offering a variety of investment options – from investing in micro-enterprises to larger SMEs, from clean financing to invoice financing, and from Shariah-compliant to conventional.

While investing is more accessible than it has ever been, DIY investors still need strategies that can help maximize one’s profit and reduce your risk at the same time. As always, investing is not an exact science and a combination of skill and luck may be required. Below are a few recommended tips that I use on my own P2P Financing platform that I founded, called microLEAP, which you may find useful:

Set a Monthly Budget

The first step to investing is making sure you are first and foremost, financially stable to invest. Ensuring the bills are paid and savings are sufficient before investing is crucial, as tapping into cash required for essential items and rainy days would be poor financial management. Always have the mindset that you are investing money that you can afford to lose. Though microLEAP’s default rate is currently 0%, the investments are not guaranteed. Default rates in the P2P Financing market in Malaysia ranges from 1% to 9% so you do need to take this into account. There is always the risk of default by Issuers or delayed returns. Setting a budget is extremely important as you are then able to set aside an allocated amount of money for investing every month, ensuring you don’t overspend.

Research The Issuer (borrower) You Wish To Invest in

As with any important decision, making one blindly is highly inadvisable especially with money on the line. Hence, it is important to ensure you are investing in the right businesses that you think will be profitable. At microLEAP, each Issuer is presented with a set of questions that request information on their nature of business, their revenue, their goals and their plans on how to use the funds they would raise. There is also a credit rationale from us that will provide you with information before you choose to invest in an Investment Note. But why stop there? Think about investing in Issuers that share the same values as you. More than 97% of Investment Notes on microLEAP’s platform are Shariah-compliant, ensuring Islamic principles are strictly adhered to. However, we have many non-muslim Investors as well. Islamic principles go hand in hand with ethical investments as the small businesses that raise Islamic financing from us are not involved in certain vices such as alcohol, tobacco and gambling. This strong emphasis on ethics is important to our non-Muslim Investors and this is a core value of how we run our platform.

Diversify Your Investment Portfolio

Once you’ve set a comfortable budget to work with and have found the right Issuer, the most important tip for investing in P2P Financing is diversifying your portfolio. P2P Financing is never risk-free as you are investing (lending) to a business. The risk, of course, is that the business doesn’t pay you back, and this is called Default Risk. How you mitigate that risk is to split your investment budget across a variety of different notes in varying industries. For example, if you have a set budget of RM500 a month to invest, it is best to put RM50 across 10 different Investment Notes, therefore minimizing the potential risks of losing all your investment if you had invested in one, single Investment Note. Fortunately, microLEAP allows this by offering the following:

1. RM50 minimum – We allow investments from as little as RM 50 per Investment Note. This allows diversification with a minimum amount of capital.

2. Auto-invest – choose our auto-invest function and set it to an amount you are comfortable with, e.g. RM50 – RM100. This ensures that a minimum amount is invested automatically in each Investment Note and you have 24 hours to retract your investment once you get our notification. This not only ensures that you don’t miss out on any Investment Notes but works well with a diversification strategy.

Overall, P2P Financing is a great way for anyone to try out investing due to the low barriers to entry. Starting small is important but once Investors are confident and understand the risks involved, investing bigger amounts can become extremely profitable over time. At microLEAP, with our Shariah-compliant profit rates averaging between 10 – 15% pa, we implore you to expand your horizons when it comes to investing, especially as the returns are far better than fixed deposits, ASB and EPF. Not to mention, you are helping many small businesses raise much needed working capital to grow during these tough times. So give us a try. Happy Investing!.

What we do: microLEAP is seen as Malaysia’s leading Shariah-compliant P2P financing platform that allows investors to put in as little as RM 50 per Investment Note, with profit rates between 10%-15% per annum. We provide small businesses access to Islamic and Conventional Peer-to-Peer (P2P) Financing to help fund their business needs. Also called P2P Lending or Marketplace Lending, it involves 2 parties: the Issuer (borrower) and the Investor (lender), where the former is a business requiring funds and the latter is an interested party seeking opportunities to make the best of their idle income.

Link to article here.

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