Crowdfunding creates new opportunities in Malaysia
Attention small businesses and start-ups: your time has come! With Malaysia leading the way in crowdfunding regulation, it's becoming easier and easier to get funding for your business.
Malaysia was the first country to regulate the growing industry to support new ideas by providing a funding mechanism. Its Securities Commission (SC) has approved a total of 12 crowdfunding platforms - six equity-based and six peer-to-peer (P2P) lending - and, though there are strict guidelines for operation, the market is creating new avenues for entrepreneurs. It's all part of advancing the financial services sector in the country, and equity crowdfunding is seen as one of the ways to enable more firms to raise growth capital and unleash innovation.
At its most simple, crowdfunding is a new way to raise funds for business or philanthropy. It has made obtaining finance more equitable. Previously, the only source of funds were bank loans, angel investors, venture capitalists or loans from family and friends. The funds in crowdfunding originate from individuals; equity crowdfunding allows you to invest in a company, working like a conventional investment in shares, while P2P lending allows you to lend money to people or businesses that will repay the cash plus interest over the term of the loan.
And with Malaysia leading the way in regulation and inspiration, it's no wonder the country is seen as a sweet spot for crowdfunding operations. It's even spawning local sites, such as Crowdo and Crowdplus.
There's another reason why Malaysia is proving so popular for crowdfunding; it's a leading destination for Islamic finance, and there are few crowdfunding sites that comply with Shariah financial needs.
Regulation - a barrier to investment?
Growing regulation of the crowdfunding industry is not putting off investors; Malaysia as a whole is one of the least complex jurisdictions in Asia, according to TMF Group's inaugural Financial Complexity Index. In order to determine the rankings, TMF Group surveyed its in-house accounting and tax experts and used four weighted complexity parameters to evaluate the accounting and tax rules and regulations in different jurisdictions, and risks associated with non-compliance.
The ranking of 94 jurisdictions across the world resulted in three top-10 spots for Asia Pacific: Vietnam ranked 5th most complex for compliance, followed by China at 7 and India at 10.
But there was a large chunk of southeast Asia which ranked on the less complex side of the table, including Malaysia (59), the first country in Asia to regulate crowdfunding.
More inclusivity in market
SC chairman and Malaysian Venture Capital Development Council chair, Ranjit Ajit Singh, says the equity crowdfunding (ECF) framework is an important milestone for inclusivity in the Malaysian capital market: "The establishment of the ECF is a component of SC's strategy to democratise finance. Over the years, Malaysia has developed a diversified and well-established MYR2.8 trillion capital market, helping businesses to grow as well as financing long-term investments in the economy," he said at the Synergy and Crowdfunding Forum 2015 (SCxSC).
"For capital markets to be inclusive, small and medium enterprises (SMEs) and start-ups must also be able to obtain market-based financing. Hence, it is timely to further widen access through innovation in financial technologies such as [equity crowdfunding] platforms," he later said in an SC statement.
What's the catch?
Under the Capital Markets and Services Bill 2015, private companies with a paid-up capital of not more than RM5 million and with a strong business plan can now fund their ventures through crowdfunding. The amount of capital collected through crowdfunding is limited to RM5m, while small and medium enterprises can crowdfund up to RM3 million in a year. For retail investors, the maximum investment amount is limited to RM5,000 for each company and RM50,000 a year for total crowdfunding investment. Any fraud committed in crowdfunding activities falls under Section 179 of the Capital Markets and Services Act which carries a prison term of not more than 10 years and a minimum fine of RM1 million.
But funding is only one aspect of doing business; companies operating in Asia still need to remain compliant with all other local laws, wherever they're trading. To achieve compliance it's best to work with a partner who can help guide you through the decision-making, and help you get on your feet safely, quickly and confidently.
Want to read more about the Financial Complexity Index? Download it here.
Get in touch with our local team and find out how we can help drive efficiency in your business.
Malaysia Accounting and Tax
Calvin Chan
Business Development Associate Director, TMF Malaysia
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