Fundaztic eyes exponential growth in financing to MSMEs

TheEdge Wed, Nov 16, 2022 03:00pm - 1 year View Original


IT has been five years since peer-to-peer (P2P) financing platform Fundaztic started its operations in Malaysia. Now with a proven track record, it hopes to fund 30,000 micro, small and medium enterprises (MSMEs) — the backbone of the economy — in the next five years.

Since its launch in July 2017, the platform has served over 3,000 MSMEs, with RM190 million disbursed. Its promising returns of up to 15% per annum have also attracted the registration of 20,000 investors, of which 5,000 are active.

It is worth noting that Fund­aztic already turned profitable a few months ago, driven by the surge in lending activity in recent months.

“Certainly 3,000 MSMEs is too small. We want to have a bigger impact. Right now, we fund 1,200 a year. In the next five years, we want to fund 6,000 a year, to organically bring the total to 30,000 by end-2027,” says Fund­aztic founder and chairman Jeffrey Chew in an interview with The Edge.

He is also the CEO of Paramount Corp Bhd. After spending seven years with the property developer, the opportunity for Chew to play an executive role in Fundaztic came after Paramount acquired a 30% stake in Omegaxis Sdn Bhd for RM13.7 million in August 2021. Omegaxis is the holding company of Peoplender Sdn Bhd, the operator of Fundaztic.

Paramount had said the investment was in line with its five-year (2020-2024) strategic plan to identify new sources of earnings, particularly those in the digital space, to future-proof the group for long-term sustainability.

“When I left the banking sector in 2014, I invested personally in Fundaztic together with a group of like-minded people. We got the licence in November 2016 and it was launched in July 2017.

“In the past, I gave advice but I didn’t really run it. This is the first time for me, as a founder, to be able to get involved in the business after five years,” shares Chew, who has 22 years of experience in the banking sector, having served as Citibank Bhd general manager of commercial banking and OCBC Bank (Malaysia) Bhd CEO.

P2P is an online financing platform for MSMEs (borrowers) to raise funds from a group of investors for business or working capital. P2P investment opportunities are open to all investors to provide financing to MSMEs in return for interest payments and repayment of the principal amount.

Through Fundaztic, MSMEs and start-ups can apply for financing of between RM20,000 and RM200,000, with repayment periods of 24 to 36 months. The monthly repayments go fully to the investors.

Since its inception, some RM15 million has been invested in Fundaztic by a group of shareholders. In 2018, Fundaztic raised RM10 million on equity crowdfunding platform pitchIN, based on a valuation of over RM60 million.

Fundraising on pitchIN this month

This month, Fundaztic is embarking on another round of fundraising on pitchIN to raise RM12 million to RM16 million, based on a valuation of RM100 million. The move is to fund its expansion into new markets, such as Singapore, Australia, the Philippines and Japan.

“We started our Singapore operations in July 2021, having funded about 30 MSMEs. We are pushing to become more aggressive in Singapore after Covid. Potentially, we could secure a licence in Australia and it will be finalised and launched in 2023. Expansion into the Philippines will be sometime in 2023 or 2024,” Chew says.

He adds that Fundaztic is considering either improving its system or rebuilding it based on Web 3.0 and blockchain technology, to address the emergence of digital banks.

“With digital banks starting to roll out in a year or two, we need to make sure that our system is adequately robust and customer-friendly, so we can continue to compete and outpace digital banks. We don’t want to rest on our laurels.”

Overall, Chew is less concerned about competition from digital banks, as MSMEs is just one of the segments digital banks  are targeting.

“We had a head start five years ago, and we will progress more differently. Digital banks may take another one to two years to launch. Moreover, we know how to run things digitally, with the design and pricing of products as well as the effective collection of payments.

“What we need now is to build capability before digital banks become very strong. Bear in mind that digital banks do not focus on MSMEs alone. Most of them focus on consumer lending and deposit taking. So, we are just part of what digital banks want to do,” he adds.

After experiencing two challenging years because of Covid-19, Chew says transactions on Fund­aztic have picked up aggressively in the past four to five months.

“We’ve built a very strong track record in terms of supporting MSMEs and creating a new class of asset with good returns to shareholders. With 3,000 MSMEs, we represent 50% to 60% of total P2P borrowers.

“Note that we have finally ramped up the operation with more than 100 MSME loans a month and RM6 million of disbursements monthly. Next year, we’re looking at doubling the performance, meaning 200 loans per month and RM12 million of disbursements, so we can ensure the platform remains profitable.”

Chew stresses that P2P operators are important in providing financing to MSMEs and start-ups, when traditional banks are reluctant to do so.

“Banks do not like this segment as it’s not tested and is seen as uncharted waters. Banks are fearful of what kind of losses these companies could incur. Another issue is the transaction cost, which is relatively high [compared with bigger loans],” he explains.

On average, the interest rate charged on MSMEs on the Fundaztic platform is 11%, according to Chew.

“What we collect from borrowers, we will pay to investors. Effectively, we charge less than 1% per annum on investors and 1.3% per annum on borrowers.”

Supporting MSMEs will help grow the country’s economy in terms of job creation and contribution to the government coffers via tax payments, he says.

“I believe in the strength of the Malaysian economy. If the economy is stable, then MSMEs will be successful. That also means they will keep employing people, who will continue paying taxes to the government,” he says, adding that its borrowers are mainly from the wholesale, retail, services and food and beverage industries.

With yearly returns that have persistently come in above the 6% declared by the Employees Provident Fund (EPF), Chew aims to achieve 500,000 investors over the next five to seven years.

“We use credit bureau data to evaluate our customers (MSMEs). Our advice is to invest in as many MSMEs as you can, as it is only RM50 per investment note.”

Capital protection when defaults happen

Having said that, P2P investment has its underlying risk in the event of default by borrowers. In the case of Fundaztic, it has seen 8% to 9% losses from its total 3,000 MSMEs so far.

“Taking into account these losses, we need to charge 11% interest on loans given. But it will still be reviewed from time to time. We don’t reprice just based on interest rate increase alone; we also look at the defaults in different categories,” he explains, adding that Fundaztic does provide principal protection of up to RM30,000 cash to investors.

In view of the lacklustre performance of the equity market in recent months, more investors may look for alternative investments for better returns.

Already, in 2021, the total funds raised from P2P platforms amounted to RM1.14 billion, more than twice the amount raised in 2020, according to the Securities Commission Malaysia (SC) Annual Report 2021. A total of 1,988 issuers fundraised in 2021, up 49% against 2020. The fundraising was successfully carried out via 14,301 campaigns.

Since P2P financing was first introduced, the total of participating investors has surpassed 28,000, though investor participation fell from more than 16,000 in 2020 to more than 15,000 in 2021.

Last week, the SC announced the opening up of registration for new P2P operators focusing on the offering of debt-based financing instruments by mid-tier companies and other larger companies. This is to allow these companies to seek financing directly from investors, while reducing the number of intermediaries in the process.

Currently there are 11 P2P operators licensed in Malaysia, having raised about RM3 billion in total, with a default rate of about 2.6%.

Earlier, SC chairman Datuk Seri Dr Awang Adek Hussin said the regulator plans to allow the wholesale fund market to gain exposure to alternative assets, such as digital assets, investment accounts and investment notes.

 

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