Malaysia 2015: Pioneering the equity crowdfunding market, anticipating P2P

From left to right: Daniel Goetffert, Executive Director of Alix Global Shamsul Jafnie Shafie, CEO and Co-Founder of PitchIN, Ranjit Ajit Singh, Chairman of the Securities Commission Malaysia Elain Lockman, Director and Co-Founder of Ata Plus Teh Kim Seng, Chairman of Propellar Crowd+ Christopher Thomas, CEO and Co-Founder of Eureeca Leo Shimada, CEO and Co-Founder of Crowdo

Malaysia’s financial services industry has undergone some notable transformations in 2015, as regulators and banks acknowledge the reality of a changing global landscape driven by the innovations in fintech.

This year saw a landmark move by the government, passing a bill to legislate equity crowdfunding (ECF).

While ECF is not a new concept in the world of financing, Malaysia has pushed ahead of its Asia-Pacific peers in making ECF a regulated means of capital raising. Authorities in Singapore and Australia are still mulling over the financing mechanism.

In June, the Securities Commission of Malaysia (SC) licensed six platform operators to launch in Malaysia, namely Alix Global, Ata Plus, Crowdo, CrowdPlus.asia, Eureeca, pitchIN.

It was six months after the SC announced the six operators, before the pioneer ECF deal went live in the market on CrowdPlus.asia’s platform.

CrowdPlus.asia, which launched its platform in November, listed currency rate tracking company CurrenSeek on its platform on December 22, aiming to raise between $69,320 and $115,530.

Under the exercise, CurrenSeek is issuing an equity size between 9.09 per cent and 14.29 per cent.

Earlier in the month, alternative business news portal KiniBiz also announced that it is going to raise $470,000 through ECF, on pitchIN’s platform.

The company is expected to list its campaign some time in January, according to the news company’s press release. The pitchIN team remained mum on details of the exercise.

Aside from these two platforms, Alix Global has also announced its collaboration with FundedByMe, an established crowdfunding platform from Sweden, in October. Under the partnership, FundedByMe will provide the platform and expertise in crowdfunding, while Alix Global will source issuers.

Whether the market will see the remaining launches in January is yet to be seen, as the operators are keeping their cards close to themselves, and eyes peeled on each other’s moves.

2015snapshot

First checkpoint

The end of the first quarter in 2016 will be an important checkpoint for the budding ECF industry, as the SC has set that as the deadline for all operators to launch their platforms and get on board their first issuers.

Some market players have also pointed out that the SC will also use that checkpoint to decide on whether to widen the market by licensing more operators.

Interestingly, while there is still an obvious lack of issuing companies listed on the existing platforms, the eagerness is more pronounced on the platform operator end where new parties are already showing interest in securing the ECF license.

One such is digital financing solutions platform Growth Accelerator Exchange (GAX).

GAX, which launched its loan facility for medium and small businesses at the end of November. GAX is an initiative by the Asean Business Advisory Council, whose chairman Dr Mohd Munir Majid said GAX will be looking at different forms of financing, in terms of capital. This could include, conceptually, P2P finance, loan crowdfunding, and even ECF.

“I heard that at the end of the first quarter of next year, the SC may want to review the ECF performance in Malaysia and may allow more operators to come on board after the review,” he had commented at the press conference, implying that GAX may apply to for the ECF licence.

GAX is established by Goh Peng Ooi and daughter, Cassandra Goh. Goh is the founder and group executive chairman of Singapore-listed Silverlake Axis Ltd. Silverlake is a technology company with a rich track record in providing banking solutions.

Taking a back seat

The SC, as a financial market regulator, has notedly taken a slightly laissez-faire approach to ECF, allowing enough room for the operators and issuers to form the market.

While getting the platforms up and running is gradually being realised, the regulator has not set in stone specific processes for ECF investors to liquidate or enlarge their investments on the platforms.

There have been suggestions of creating a secondary market in each platform for the investors to trade their equity holdings, although this idea has not been formalised as yet.

A person involved in the industry told DEALSTREETASIA that the SC has mentioned the possibility of having trading days, about two weeks every six months, for investors to trade their equity on a consolidated secondary exchange.

However, an executive familiar with the developments clarified that there was no formal suggestion for the regulator to set up a separate one-for-all secondary stock exchange.

Instead, SC’s public consultation paper released in September in 2014 noted that the operators may set up their separate facility for secondary shares.

Noteworthy is that it may not make financial sense for the operators to operate their own separate trading facility just to trade ECF shares.

“The operators may do that, and offer it during a limited trading window, for example,  two weeks in every six months,” the executive said, adding that: “This is not mandatory, it depends on the operators’ business case.”

The executive  told DEALSTREETASIA that the SC “will see how the market forms itself”.

“Perhaps the operators can band together and use one trading venue for secondary sales, perhaps they will do it separately on their respective platforms,” the executive said.

What the SC holds the operators to, however, is the investor awareness and education that is required of the operators when listing an ECF exercise.

P2P on the horizon

Furthermore to the ECF buzz, is the prospects of running a peer-to-peer (P2P) lending business.

The SC has said that it would introduce a framework for the financing model in 2016, as interest in P2P grow.

A person from a legal firm dealing with startups, noted that the SC has already engaged P2P lenders from Europe to better understand the financing model.

The person, who declined to be named, said it is likely that the regulator will come up with a public consultation paper in the next few months, like how it solicited feedback from Malaysians on ECF in September 2015 before designing its guidelines.

Even before launching their ECF platform or announcing any deals in the pipeline, some of the operators are already preparing to dabble in P2P.

Singapore-based Crowdo is one. The company has already listed P2P in Indonesia as one of its offerings on its website.

From conversations with market observers and players, DEALSTREETASIA gathered that some parties thought of ECF as the appetiser, and P2P to be the main course, in terms of returns for operators. On average, the ECF platforms will take a 7 per cent commission from the total funds raised.

In his presentation at Catcha Group’s Wild Digital conference, 500 Startups managing partner Khailee Ng noted that P2P lending, alongside payment solutions, enterprise services, mobile revolution, is an emerging theme in Southeast Asia.

He believed that these five areas could produce the next startup unicorns, seeing that other markets like the US and China are leading the trend.

That said, he commented that while there are many global references of billion-dollar P2P lending companies especially in China and the US, the Southeast Asia region was not as easy to tread given the legal considerations and cultural differences.

Also read:

Malaysia: CrowdPlus launches Asean’s first equity crowdfunding platform

Securities Commission Malaysia invites submissions from equity crowdfunding operators

Exclusive: SC Malaysia mulls setting up of limited stock exchange to trade equity crowdfunding secondary shares

P2P lending, payment solutions, on-demand revolution are upcoming trends in SEA: Khailee Ng

China introduces new guideline for P2P lending , cracks down on online financing in bid to protect investors