As technology keeps improving, so do many industries – including the finance industry. There are now financial companies that heavily utilize digital technology for their business models and operations. People have a term for these companies: FinTech (financial technology). One of the most popular business models born of FinTech is digital/debt financing, which matches issuers and small businesses with investors via an online platform without going through traditional intermediaries like banks and other financial institutions.
The concept of debt investment financing was first created and utilized in the UK in 2005, but it has now spread globally, including Asia.
Began with a mix of online and offline models
In the US and the UK, this model of financing is predominantly an online model. When it started gaining traction in Asia, the majority of providers worked with a mix of online and offline models. Lack of data availability and low Internet penetration increased the challenges of digital financing taking hold in Asia. But in the last few years, a new set of entirely online providers emerged. They use behavioural data from social media, acquire data through partnerships, and use innovative technology-based credit scoring methods.
China leads the pack
According to the World Economic Forum, China currently holds the record for most digital financing volume disbursed in the world, with total funding distribution reaching USD 40 billion in 2014. The development of digital financing in China has outpaced the USA and the UK, with USD 9 billion and USD 5 billion funded via digital financing respectively.
Singapore leads the Southeast Asian market
Let’s take a closer look at digital/debt investment financing in Southeast Asia. The platforms are sprouting in different Southeast Asian countries, including Malaysia, Singapore, Indonesia, and Thailand. Right now, Singapore is dominating the region’s digital financing market.
How about Malaysia?
Meanwhile, in Malaysia, the regulation of digital financing is distilled within the Capital Markets and Services Bill (CMSB). The bill specifies that individual investors are very welcome to participate in digital financing, so long as they don’t exceed more than RM 50,000 per year. All in all, digital financing, with its offers of high-return, safe investments and fast working capital for local SMEs, seems to have a bright future in Malaysia.
The outlook of debt investment/digital financing in Asia is bright; it will continue to bring the finance industry in new, technology-driven places. You can participate in debt investment/digital financing as an investor, an issuer, or sometimes even both! The concept is profitable for business growth and personal finances.