Serving the Underserved through Digital Finance (towards a more - - PowerPoint PPT Presentation

Serving the Underserved through Digital Finance (towards a more inclusive capital market)

presentation by Securities Commission Malaysia

Very Small Firms

possibly with no collateral and no track record

Small Firms

possibly with high growth potential but

• ften with limited

track record

Medium sized Firms

some track record, collateral available if necessary

Large Firms

• f known risks and

track record

Initial Insider Finance Angel Capital Venture Capital Public Equity Commercial Paper Short Term Financial Institution Loans Intermediate Term Financial Institution Loans Mid Term Notes Mezzanine Fund Financing Private Placement Public Debt Supply Chain Financing and Trade Finance

Underserved Corporate Financing Needs – Micro to MidCaps

• Today, most public

exchanges only list and trade equities, debt and derivatives instruments, which do not holistically solve many small and medium corporate funding needs

• Lenders have been

hesitant to extend credit due to poor consistency

• f financial/credit

reporting standards, lack of credit ratings and concerns of cross border ownership rights

• Requires more

sophisticated and innovative institutional arrangements in order to respond effectively to the real needs of this segment Underserved segment

Many small and mid-sized corporates have struggled to obtain funding through financial institutions to meet financing needs

2 Securities Commission Malaysia

P2P Financing (capital for growth) RM1mil RM5mil Bursa Main Market Bursa ACE Market Venture Capital Pre-IPO/IPO Funding stage

Investment Size SME years in operation (est.)

Equity Crowdfunding (seed capital) Seed Series A Angel Investor Series B

• nwards

Private Equity Note: This is a non-exhaustive illustration of the private sector-led avenues for SME financing in Malaysia 3 Securities Commission Malaysia

Capital market financing avenues for SMEs in Malaysia

• Equity Crowdfunding to address the early-stage funding and P2P working capital gap

4 Securities Commission Malaysia

Malaysian Regulatory Framework: Registered Market

Recognized Market Framework…

• CMSA Amendment Act 2015 introduced the RMO framework in place of

the REF framework

• Enables SC to impose any T&C on a RMO, review the status of a RMO

and require it to apply to be approved as an exchange and recognize foreign operators to be a RMO

Approved stock Exchange or Derivatives/ Commodity Exchange (e.g. Bursa Malaysia) Operated by a Recognized Market Operator (e.g. ECF, P2P operators)

Market

Recognized Market Approved market Facilities established and operated by Bank Negara, Schedule 1 (e.g. Rentas, BIDS) Exempt market

All-or-Nothing approach Tiering of investors class:

• RM5k for retail investors for

a single investment and, no more than RM50k within 12 months

• Up to RM500k for Angel

investors within 12 months

• Unlimited amount for

sophisticated investors

Investor

Platform operator registered as Registered Market Operator (RMO) Not allowed to conduct regulated activities unless licensed (CMSL) Disapplication of general solicitation rule under Companies Act 1965 3rd party (Trustee) to remit/ handle monies

Platform

Listing of locally incorporated private companies as issuers to raise funds RM3 million fund raising cap in every 12 months period Total of RM5 million fund raising cap for each entity

Issuer

5 Securities Commission Malaysia

Key salient features of Malaysian ECF regulatory framework

6 Securities Commission Malaysia

Financing local startups and SMEs through ECF

• ECF platforms to offer investment opportunities to investors in Malaysia and beyond

ECF Platform GRAND TOTAL (industry)

• No. of

Campaigns 1 2 2 1

6

Total Raise thus far (% funded) Halal Speed Dating RM200,000 (100%) The Parenthood RM2.6 million (251%) Nuren Group RM295,200 (147%) Edugat RM280,000 (140%) Green Lagoon Tech RM800,000 (200%) KRU Academy RM260,000 (104%) Total funds raised (per platform) RM200,000 RM2.89 mil. RM1.08 mil. RM260,000

RM4.43 mil

Industry Halal Speed Dating Tech The Parenthood Retail Nuren Group Tech / e- commerce Edugat Education / Consulting Green Lagoon Tech Cleantech KRU Academy Education

7 Securities Commission Malaysia

Key salient features of Malaysian P2P Financing regulatory framework

• Registered with SC as RMO
• Minimum RM5 million paid-up capital
• Conduct background check and gives risk

scoring

• Trust accounts for funds raised and repayments

to investors

• Appoint Shariah Advisor (when applicable)
• Must disclose on platform:
• Info relating to the issuers
• Info on risk scoring mechanism,

methodology and parameters adopted by the P2P operator

• Default criteria, default management,

statistics on late payment / default rate of issuers

• info on processes / arrangement in the

event the P2P operator is unable to continue its operations

Issuers P2P operator Investors

• No investment limit for

sophisticated and angel investors

• Retail investors are

highly encouraged to limit P2P investment exposure at RM50,000 at any one time

• No personal loan

allowed

• Only for local

businesses

• Rate of financing not

more than 18% per annum*

• No concurrent hosting
• n multiple P2P

platforms for same purposes

• No cap in funding

sought

• Must raise at least 80%
• f the target amount
• Oversubscription not

allowed

• All info disclosed to
• perator must be true

and accurate

*otherwise require prior consultation with SC

• SCxSC has been organised for two consecutive years, in partnership with other government agencies and industry

players to build awareness on new methods of capital formation in the digital age of online interactive media

• Thought leaders in crowdfunding and entrepreneurship share their insights and experiences in building businesses

and the reach of innovative online capital-raising mechanisms such as crowdfunding

…announced 6 ECF platform operators …and featuring successful entrepreneurs

….agencies and associations

8 Securities Commission Malaysia

Creating public awareness through the (SCxSC) Forum

THANK YOU

9 Securities Commission Malaysia