Tech: Fundaztic the first to offer capital protection to P2P investments

TheEdge Fri, Oct 11, 2019 02:00pm - 4 years View Original


SINCE 2017, there have been 4,438 successful peer-to-peer (P2P) financing campaigns across 1,139 issuers, raising a total of RM377.16 million as at June this year.

That is not all, as funding raised has increased dramatically, rocketing 452% year on year to RM180.05 million in 2018 from RM32.6 million in 2017.

Notwithstanding the encouraging development of Malaysia’s P2P financing industry over the last two to three years, defaults and write-offs remain an investment concern.

Last month, The Edge reported that a motor oil company that had raised capital through a P2P platform was on the brink of defaulting on a RM3.5 million debt. If that eventuates, it could be the single largest default in Malaysia’s P2P financing industry thus far.

Fundaztic.com believes it is timely to introduce Principal Protect, which protects investors from capital losses if their investments are made as per conditions set.

Founding CEO and director Kristine Ng Wei Miem says Fundaztic is the first and only P2P platform that offers capital protection of its own. And the beauty of it is that it is free.

Principal Protect does not require members to sign up or opt in, and is automatically provided as soon as a member meets two conditions.

First, investors have to build a portfolio of at least 100 notes within 12 months. Secondly, the highest invested amount in a portfolio must not exceed three times the average investment amount per note.

Ng maintains that a successful investment in P2P is not gambling — whereby investors put all their money into a single note, hoping to get all the returns in the world. Instead, she says it is about building a portfolio of as many notes as possible.

“We always encourage our investors to diversify as thinly as possible. It is like spreading butter and kaya on toast. You should spread it thinly and evenly while it is hot. Then, your toast will taste good,” she tells The Edge in an interview.

“At the end of the day, the return is still the same — 10% of RM50 and 10% of RM1,000, it is still 10%. But 10% of RM50 over 20 notes is definitely safer than 10% of RM1,000 over one single note,” Ng explains.

Before her role in Fundaztic, she was executive vice-president of business development at Credit Guarantee Corporation (CGC).

Fundaztic — fully owned and managed by Peoplender Sdn Bhd — is one of the first six P2P financial platforms licensed by the Securities Commission Malaysia (SC) in November 2016.

To date, the SC has granted a total of 11 P2P financing licences.

As at end-July, Fundaztic hosted 763 investment notes on its website, with a total funding campaign of RM59.9 million. It has disbursed RM55.2 million towards the 725 investment notes that have been fully funded.

Ng points out that Principal Protect has a built-in mechanism within the system that will automatically kick in with every 100 notes in a member’s portfolio.

But she reiterates that the highest investment amount should not deviate more than three times from the average amount invested per note.

For instance, if the average investment for a portfolio of 100 notes is RM1,000 per note, only investments worth up to RM3,000 will be covered by Principal Protect.

It should also be noted that the amount of capital protection is capped at a certain level.

Principal Protect offers the opportunity for Elite members who have invested RM100,000 and above to be protected up to RM30,000. The non-elite members with investments of below RM100,000 and all other members will be protected up to RM10,000.

“During the early days, we were asking ourselves, ‘How many notes would be safe?’ We can only gauge from the internet and other successful platforms around the world. Some say 40, some say 100,” recalls Ng.

“Based on our data and stress test, we have discovered that the magic number of a resilient and successful portfolio that can withstand the anticipated default is 100. That is why we have bravely decided to launch Principal Protect, so that our investors would have peace of mind from day one.”

Fundaztic has a paid-up capital of RM15.5 million and is founded by a lawyer and a group of ex-bankers, including Jeffrey Chew, the non-executive chairman of the company.

Chew began his career at PricewaterhouseCoopers and thereafter, joined Citibank. He was also formerly a director and CEO of OCBC Bank (M) Bhd, and now heads Paramount Corp Bhd as group CEO.

Ng acknowledges that the capital protection fund of Principal Protect will come from company funds as insurance companies are not willing to provide such a credit guarantee at present, even though they consider it “an interesting concept”.

Even so, Fundaztic is confident that a portfolio of 100 notes is very resilient and is thus offering capital protection to its investors.

“Our stress test clearly shows that no investor who has at least 100 notes is close to losing any money. In fact, most of them are making close to three or four times the FD (fixed deposit) rates,” says Ng.

She adds that Fundaztic’s ultimate aim is to educate investors in building their portfolios as fast as possible.

“We find that a lot of young investors, some of them will just invest in one note and then they will start praying that nothing goes wrong. Some of them stop at 20 notes. But to us, that is not resilient enough,” Ng asserts, adding that Fundaztic’s mechanism of capital protection is seamless.

“Unlike insurance, you don’t have to submit claims. At the end of each month, our system will pull out reports to show the investors who have negative net safety margin, which represents the amount of money you can afford to lose before your capital is impacted — in other words, your breakeven point,” she explains.

“When we see a negative, the system will identify whether it is caused by any of the notes within the portfolio that is guaranteed. If it is caused by that, by the 10th working day of the following month, we will pump back the money to you and you will see it as available balance. You can reinvest or even withdraw it if you want.”

 

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