Microfinance, also referred to as microcredit, is a form of lending intended to help low-income individuals or micro-enterprises receive financing purely for business purposes. Often, this is the underserved or unbanked community that needs the funds the most. Peer-to-Peer (P2P) Financing, also called P2P Lending or Marketplace Lending in other countries, involves 2 parties: the Issuer (borrower) and the Investor (lender), who are private entities where the former is a business requiring funds and the latter is an interested party seeking investment opportunities. P2P Financing marries the two and provides a platform where a multitude of Investors may finance one Issuer. Typically, banks require an applicant to undergo a stringent process where up to three years’ worth of credit score and a long approval process are typically needed. However, small businesses and micro-entrepreneurs may not even have been around for that long to build up the required status by banks needed for funding approval. Oftentimes, several months can result in many changes especially for smaller organisations, meaning a long approval period would hinder overall company growth and progress.
by Tunku Danny Nasaifuddin Mudzaffar
For micro-enterprises, these issues merely scratch the surface of the problems plaguing the finance industry and its effectiveness when run by banks. While this is the fault of no particular party, there has definitely been a growing need for alternative financing methods such as P2P Financing to ease the burden of banks. To date, there are 11 P2P Financing platforms regulated by the Securities Commission Malaysia (SC) with microLEAP being one of them. These platforms function to provide MSMEs (Micro, Small and Medium Enterprises),startups as well as one-man businesses with the required funds to either stay afloat or expand.
Before the pandemic struck, Malaysian businesses were already struggling to keep up with economic conditions making running a business all the more difficult. Enter COVID-19 and people around the world, just like Malaysians, were plunged into uncertainty – a financial nightmare. Social distancing and movement restrictions imposed by the government in an effort to curb the spread of COVID-19 posed a huge threat to the economy, as consumers were forced to stay at home and not spend, resulting in a downward spiral for most businesses unless they had an online presence. While larger entities have been able to cut operation costs and manage assets more efficiently to stay afloat, the same cannot be said for much smaller businesses that rely on day-to-day cash-flow to keep themselves above water.