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

Many small and mid-sized corporates have struggled to obtain funding through financial institutions to meet financing needs Underserved Very Small Medium sized Small Firms Corporate Large Firms Firms Firms possibly with high Financing Needs – growth potential but of known risks and possibly with no some track record, often with limited track record collateral and no collateral available if Micro to MidCaps track record track record necessary • Today, most public Initial Insider exchanges only list and Finance trade equities, debt and Angel Capital Venture Capital Public Equity derivatives instruments, which do not holistically solve many small and Commercial Paper medium corporate funding needs Short Term Financial Institution Loans • Lenders have been Intermediate Term Financial hesitant to extend credit Institution Loans due to poor consistency of financial/credit Supply Chain Financing and Trade Finance reporting standards, lack of credit ratings and concerns of cross Mid Term Notes border ownership rights Mezzanine • Requires more Fund Financing sophisticated and Private innovative institutional Placement arrangements in order to respond effectively to Public Debt the real needs of this Underserved segment segment Securities Commission Malaysia 2

Capital market financing avenues for SMEs in Malaysia - Equity Crowdfunding to address the early-stage funding and P2P working capital gap Investment Size Funding stage Private Equity Bursa Main Market Bursa ACE Market Pre-IPO/IPO Venture Capital RM5mil Series B onwards P2P Financing (capital for growth) Equity Crowdfunding (seed capital) Series A Angel RM1mil Seed Investor SME years in operation (est.) Note: This is a non-exhaustive illustration of the private sector-led avenues for SME financing in Malaysia Securities Commission Malaysia 3

Malaysian Regulatory Framework: Registered Market Market Approved market Recognized Market Exempt market Approved stock Exchange or Operated by a Recognized Market Facilities established and operated Derivatives/ Commodity Exchange Operator by Bank Negara, Schedule 1 (e.g. Bursa Malaysia) (e.g. Rentas, BIDS) (e.g. ECF, P2P operators) 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 Securities Commission Malaysia 4

Key salient features of Malaysian ECF regulatory framework Platform operator registered as Listing of locally incorporated All-or-Nothing approach Registered Market Operator private companies as issuers (RMO) to raise funds Tiering of investors class: Not allowed to conduct o RM5k for retail investors for RM3 million fund raising cap regulated activities unless a single investment and, no in every 12 months period licensed (CMSL) more than RM50k within 12 months Total of RM5 million fund Disapplication of general raising cap for each entity o Up to RM500k for Angel solicitation rule under investors within 12 months Companies Act 1965 o Unlimited amount for 3rd party (Trustee) to remit/ sophisticated investors handle monies Issuer Platform Investor Securities Commission 5 Malaysia

Financing local startups and SMEs through ECF - ECF platforms to offer investment opportunities to investors in Malaysia and beyond ECF GRAND TOTAL Platform (industry) No. of 1 2 2 1 6 Campaigns Total Raise Halal Speed The Parenthood Edugat KRU Academy thus far Dating RM2.6 million (% funded) RM200,000 (251%) RM280,000 RM260,000 (100%) (140%) (104%) Nuren Group Green Lagoon Tech RM295,200 RM800,000 (147%) (200%) Total funds RM200,000 RM2.89 mil. RM1.08 mil. RM260,000 RM4.43 mil raised (per platform) Industry Halal Speed The Parenthood Edugat KRU Academy Dating Retail Education / Education Tech Consulting Nuren Group Tech / e- Green Lagoon Tech commerce Cleantech Securities Commission Malaysia 6

Key salient features of Malaysian P2P Financing regulatory framework P2P operator Issuers Investors • Registered with SC as RMO • No investment limit for • No personal loan • Minimum RM5 million paid-up capital allowed sophisticated and angel • Conduct background check and gives risk investors • Only for local scoring • Retail investors are businesses • Trust accounts for funds raised and repayments highly encouraged to • Rate of financing not to investors limit P2P investment more than 18% per • Appoint Shariah Advisor (when applicable) annum* exposure at RM50,000 • Must disclose on platform: at any one time • No concurrent hosting • Info relating to the issuers on multiple P2P • Info on risk scoring mechanism, platforms for same methodology and parameters adopted by purposes the P2P operator • No cap in funding • Default criteria, default management, sought statistics on late payment / default rate of • Must raise at least 80% issuers of the target amount • info on processes / arrangement in the • Oversubscription not event the P2P operator is unable to allowed continue its operations • All info disclosed to operator must be true and accurate Securities Commission Malaysia 7 *otherwise require prior consultation with SC

Creating public awareness through the (SCxSC) Forum • 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 …and featuring successful …announced 6 ECF platform operators …. agencies and associations entrepreneurs Securities Commission Malaysia 8

THANK YOU Securities Commission Malaysia 9