Small and medium enterprises are rapidly transforming the Malaysian economy, making up 66% of the labour force and contributing to about 38% of the GDP in Malaysia. Yet, SMEs often face challenges in raising capital for their businesses due to lack of access to funding, especially during their nascent stages of growth. As a result, more companies are looking towards alternative solutions such as equity crowdfunding (ECF) and peer-to-peer financing which are enabled by financial technology.
In today’s article, we discuss the possible financial options for entrepreneurs and SMEs in Malaysia.
EQUITY CROWDFUNDING (ECF)
Introduced to Malaysia by the Securities Commission (SC) Malaysia, ECF is primarily designed to serve as a platform for SMEs and startups to obtain access to financing for growth. SMEs are able to raise funds by issuing public shares or by exchanging equity with investors for cash. The issuers include local private companies and can raise up to RM 3 million in a year. The operators include: PitchIn, Alix Global, Ata Plus, CrowdPlus.asia, Crowdo, and Eureeka.
Also known as debt-based crowdfunding, P2P financing allows loans to be attained directly from investors. This eliminates the role of financial institutions as intermediaries. SMEs raise capital from investors and repay the amount with interest in installments. The SC does not impose any limits on the amount of capital that can be raised as this would be decided by the P2P operators based on risk assessments. The operators include: Ethis Kapital, FundedByMe Malaysia, ManagePay Services, B2B FinPAL, Fundaztic, and Funding Societies Malaysia.
Although ECF and P2P were introduced in 2015 and 2016 respectively, there remain to be a lack of awareness among SMEs about these alternative options and the differences between them. Awareness of viable alternatives is the first step for companies to address the issue of cash flow management. By leveraging on technology to connect investors and businesses that are neglected by banks, SMEs can therefore effectively raise capital in an efficient manner.
If you are an entrepreneur or own a small to medium-sized business, and you are interested to learn more about the financing options in Malaysia, do follow the H.E.R Entrepreneur Facebook page. We post weekly articles on a wide range of business-related topics that will provide you with the insight you need for the growth of your company – and it’s all free!
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