Malaysia Can Be Asian Hub for Easier Access to Funds by SMEs

PETALING JAYA: With the Securities Commission spearheading the move to regulate equity crowdfunding (ECF) platforms, Malaysia has the opportunity to become the micro investment financial centre in Asia by allowing small and medium enterprises (SMEs) and startups better access to funds for growth.

Crowdfunding platform operator pitchIN, who is interested in becoming an ECF platform operator in Malaysia, said investors, especially angel investors, would also benefit from such regulations as there would be easy access to important information.

“The ECF platform is a funnel for these deals that have gone through forms of due diligence by the platform owner.

“Now that information will be available and transparent, investors can invest on their own or in groups in a particular startup or company that meets their appetite,” co-founder Sam Shafie told StarBiz in an email interview.

Noting that investing was a risky business, he said that information about SMEs and startups looking to raise funds could be scarce to the retail investor.

Regulating ECF, he said, would ensure that sufficient and minimum information was made available to the public before they decided to invest.

“ECF platforms will also have a responsibility to ensure that the startups or companies that raise funds via their platform are credible and have sufficient information to help investors decide. Platforms which are regulated will also have the added responsibility to create awareness, educate and ensure that investors are well-informed of the risks,” he said.

Sam said he was targeting technology startups and companies raising funds at Series A level, adding that the southeast Asia region was an exciting region for the technology and digital industries, as well as an unaddressed market of non-tech SME companies.

Series A level is the next step after a startup receives its initial seed funding. In the local context, any amount of funding between RM1mil to RM3mil can be said to be a Series A funding.

He pointed out that SME Corporation Malaysia reported that there were tens of thousands of SMEs but that they had no access to the capital markets in any significant way.

“If just 10,000 of these companies plan to raise capitals at levels approved by SC for the ECF over the next 5 years, the potential market is at least 10 billion,” he said.

South-East Asia’s biggest crowdfunding company Crowdonomic’s co-founder and managing director Leo Shimada said that SMEs and startups were a major economic force being fueled by the rise of entrepreneurship in Malaysia.

However, he noted that there was currently a financing void for startups and SMEs across multiple sectors which had high potential but were still in the growth stages or in new industries.

“Every major market in Asia is now in the process of introducing ECF-targeted regulations and Asean is no exception. ECF creates visibility for these high potential companies by opening up to a broad community of investors with various expertise and investment appetite,” he said.

Leo noted that Malaysia was “clearly a pioneer market” in the region as it announced its ECF framework last year, with Singapore and Thailand being the two next countries to jump on the bandwagon.

Describing the Malaysian ECF framework as unique, he said that it had an inclusive and innovative nature as it would create greater economic alignment between platform operators and investors.

“It not only allows a broader set of Investors and Issuers, such as angel investors and micro funds, to participate, but also allows the ECF platform operator to play a proactive role such as investing in the Issuers listed on the platform,” he said.

If ECF platforms continued to go unregulated, Leo said that such uncertainty in the regulatory environment would only delay the launch of fully-compliant ECF platforms.

“Businesses would lose precious time having to resort to traditional and inefficient methods of financing, while Investors will lack the transparency that ECF has to offer,” he said.

The SC in February released guidelines to introduce new requirements for the registration of equity crowdfunding (ECF) platforms and provide governance arrangement for the operators.

Under its framework, eligible issuers can raise up to RM3mil within a 12-month period and be able to tap on investments from retail, sophisticated and angel investors subject to limits as provided in the Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007.

“As the operator plays a critical role in ensuring confidence in the ECF platform, the guidelines entrust the operator with obligations to ensure issuers’ compliance with platform rules,” it had said.

For more information on the guidelines, visit http://www.sc.com.my/legislation-guidelines/equity-crowdfunding/.