Nowadays, it looks like everyone seems to be on the lookout for recent ways to make their money work for them. One method that does gained popularity in Malaysia In recent years, peer-to-peer (P2P) financing has emerged, allowing investors to finance SMEs while earning potentially high returns.
Not to be confused with equity crowdfundingP2P financing provides financing to SMEs, which then translates into investment bonds wherein investors can invest. In return, investors receive a profit.
There are already several P2P platforms available available on the market, including: CapBaya number one player in Malaysia alongside others reminiscent of Crowdfundr and Microleap.
As with any investment, it will be important to weigh the advantages and risks involved. In collaboration with CapBay, we’ll cover them in this text and show you the way the platform makes it easier for investors to start.
Advantages of P2P financing
1. High profits for investors
If you are hoping to realize higher returns than your typical savings account or fixed deposit, P2P financing could also be a very good fit.
Take CapBay for instance: it offers net return rate as much as 10% per 12 monthsdepending in your investment portfolio and risk tolerance.
2. Easy diversification of investments
When it involves investment risk management, diversification is essential and P2P platforms facilitate the distribution of funds between different firms. That way, if one investment note doesn’t perform well, it won’t hit you as hard.
CapBay also simplifies this process with its Automatic investment function. This feature is used using an automatic algorithm spreads your investments based in your risk appetite— Conservative, Moderate or Aggressive.
Several aspects influence the algorithm, reminiscent of issuer exposure, portfolio size and money balance. “Our Auto Invest feature is designed to provide hassle-free investing. Once a risk profile is selected, investments will be finalized by selecting bonds that match the risk profile of our investors,” said the CapBay team.
3. High liquidity
Compared to some traditional investments, P2P financing provides greater liquidity, making it easier to convert your investment back into money.
Some P2P financing platforms provide even shorter tenures than the industry standard of 12 to 18 months. For example, CapBay offers P2P notes with a validity period of as much as six months.
This means investors can rejoice faster return on investmentincreasing liquidity and facilitating more frequent reinvestments.
4. Shariah-compliant investment opportunities
If you like to take a position in Shariah-compliant notes, don’t fret.
There are P2P financing platforms reminiscent of CapBay that offer Sharia-compliant products to support businesses that adhere to Islamic principles.
As of late 2023, the platform offers a Shariah-compliant P2P investment option called CapBay P2P Islamic. This option means that you can spend money on halal firms while earning competitive returns.
Disadvantages of P2P financing
1. Still recent and unregulated in some regions
Since P2P financing is a comparatively recent phenomenon, concerns in regards to the security and credibility of the platform are comprehensible.
However, there are P2P platforms in Malaysia reminiscent of CapBay regulated by Securities Commission (SC) that implement stringent guidelines to make sure the security and trustworthiness of financial services operating within the country.
“Thanks to our solid alternative lending data and Credit scoring based on artificial intelligenceour investors should not worry about the funds invested in these companies because we have been able to maintain the lowest default rate since our inception,” CapBay said.
2. Capital requirements usually are not the identical in every single place
As with traditional investment opportunities, capital requirements for P2P financing usually are not fixed. Some platforms reminiscent of Capsphere require as little as RM50, while others reminiscent of Alixco require a better amount of RM200.
For CapBay, the platform has a minimum capital requirement of RM10,000.
This may seem to be rather a lot of money, however the team explained that it allows for higher diversification when using the Auto Invest feature. With more capital, it is feasible reduce the impact of insolvency and achieve more stable profits.
3. There could also be a risk of insolvency
As an investor, you’re rightly concerned in regards to the risk of insolvency, especially since P2P financing offers investment bonds for underserved SMEs.
To combat this, platforms like CapBay we conduct rigorous risk management and credit assessments before firms are approved for financing.
This might be how CapBay has maintained the bottom level within the industry default rate of 0.3% (as of October 2024)in comparison with a median rate of 2-3%.
In the event of default, CapBay has clarified that it would handle the recovery process with its experienced legal and debt recovery team. “Any recovered funds will be returned to investors on a pari-passu basis based on the investment allocation amount, less any recovery costs.”
4. Platform fees can reduce investment returns
Another drawback of P2P investing is platform fees, which might eat into your profits. Fees vary depending on the platform.
For example, CapBay charges a service fee of 10% to 30% on the gross profits earned by investors.
While this will likely seem steep at first, there’s a reason for it. For example, CapBay service fees are charged only on profitsnot the primary investment. Additionally, they don’t charge other fees reminiscent of sales or annual management fees.
Some platforms like CapBay and Nusa Kapital do as well transparent presentation of expected profits in spite of everything fees, so you’ll need a clearer picture of your profits.
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Unlike volatile market-linked investments, P2P financing offers expected rates of return, making it more predictable. However, there remains to be a risk of insolvency and the regulations are a comparatively recent alternative investment option and may change over time.
If you are considering P2P financing, the CapBay platform offers a solid foundation on which to construct and flexibility to fit your risk preferences.
Whether you’re a brand new or experienced investor, CapBay’s tools and support will allow you to confidently make the most of this exciting investment opportunity. The platform currently offers discounts on the complete service fee for brand spanking new investors while you enroll from now until March 31, 2025
- Find out more about CapBay Here.
- Read other finance related topics Here.
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