Peer-to-peer (P2P) lending in Singapore has emerged as a significant alternative financing method, especially for small and medium enterprises (SMEs) facing the challenges of traditional bank loans.
inflation was named as the top challenge by over half of the Singapore SMEs surveyed. This scenario underscores the growing importance of P2P lending as a viable financial solution, according to the most recent Global Business Monitor survey by Bibby Financial Services,
Although Singapore’s inflation rates are showing a downward trend after peaking in late 2022, the economic landscape remains daunting with headline inflation still at a significant 3.4 percent as of August.
For a deeper understanding of how P2P lending is transforming Singapore’s financial scene, offering viable opportunities for both borrowers and investors, delve into our full guide.
Understanding P2P Lending
Investopedia defines Peer-to-peer (P2P) lending as a modern financial technology that enables individuals to borrow and lend money directly amongst themselves, bypassing a traditional bank or financial institution. This system operates through P2P lending websites, which act as intermediaries by connecting borrowers with investors.
These platforms set the rates and terms, facilitating the transactions efficiently. In this framework, P2P lenders, typically individual investors, seek to achieve higher returns on their cash savings compared to what traditional bank savings accounts or certificates of deposit offer.
What stands out in P2P lending is the personal connection between borrowers and lenders. The process typically involves the following steps:
1. Registration: You register on a P2P platform.
2. Application: You apply for a loan by providing the necessary details.
3. Matching: The platform matches you with investors based on the loan amount, interest rate, and other terms.
4. Agreement: Once an investor shows interest, terms are agreed upon.
5. Transaction: The money is transferred directly to you, bypassing traditional banking channels.
In Singapore, P2P lending has gained legal status and is growing in popularity, as evidenced by the presence of 60 startups in the online lending and crowdfunding space, according to the Singapore Fintech Association, a cross-industry non-profit initiative. This burgeoning sector is led by significant players such as Funding Societies, which specializes in peer-to-company (P2C) lending, primarily focusing on providing loans for SMEs.
Additional platforms contributing to the diversification of funding options for SMEs in Singapore include Crowdo and Capital Springboard. Crowdo offers P2P and equity crowdfunding services in both Singapore and Malaysia. On the other hand, Capital Springboard stands out as the largest P2P invoice finance platform in the region, with over S$170 million worth of invoices transacted as of October 2017.
Benefits of P2P Lending
The evolving landscape of P2P lending in Singapore illustrates a dynamic shift in licensed financial institutions, offering alternative, accessible, and potentially more lucrative investment opportunities compared to traditional financial avenues.
In an article published by Business Insider, Johannes Larsson, the CEO of Financer.com, an online platform for comparing loans and other financial products, said, “The recent buzz around decentralized finance shows us the growth potential of peer-to-peer lending. I expect it to not only become more popular in the future but also become the norm one day, as society slowly but surely moves toward decentralization.”
Here are some of the benefits of P2P Lending:
- Accessibility: Unlike conventional financial institutions, this approach to borrowing and investing is typically more flexible and inclusive, welcoming a broader range of participants.
- Flexibility: This is a key advantage for both borrowers and investors. As a borrower, you can secure loans without the strict requirements typically imposed by banks. Investors, on the other hand, have the freedom to select specific loans to fund, based on their personal risk appetite and interest-rate preferences.
- No collateral is required for a loan: This opens doors for individuals and businesses that might not have significant assets to pledge.
- Faster access to funds: It’s particularly beneficial for SMEs and startups, as they can obtain the necessary capital more swiftly than through traditional means.
- Attractive returns for investors: Sometimes these platforms offer higher returns than those from traditional savings or investment products.
- Diversification: Investing in different loans can spread risk and increase the robustness of your investment portfolio.
- Low barrier to entry: Investing in P2P platforms requires relatively low minimum investment, making it easily accessible to risk-averse investors.
Risks of P2P Lending
When considering involvement in P2P lending in Singapore, it’s crucial to recognize various risks associated with this investment platform. Howard Dvorkin, CPA and Chairman of Debt.com said in an article by Bankrate, “If you’re fed up with bank fees, you’ll really hate P2P loans.”
- Lack of guarantee in securing desired loan amount for borrowers.
- Heightened cybersecurity concerns due to online transactions.
- Potential for encountering fraud on P2P platforms.
- Risks related to interest rate fluctuations and repayment timelines.
- Deduction of platform service fees from investor returns.
- Non-liability of P2P platforms in case of borrower repayment defaults.
Comparing P2P Lending Platforms in Singapore
At a Glance
BRDGE is a MAS-licensed digital lending platform that connects small and medium-sized enterprises (SMEs) in Singapore with retail and institutional lenders. Since its inception in 2014, BRDGE has focused on enabling growth for SMEs and creating wealth for lenders.
The platform offers attractive returns for investors, ranging from 5-17% p.a. minus fees, and allows anyone to start investing with just S$500. It provides flexible investment periods ranging from 3-24 months and is known for its user-friendly interface and efficient investment process.
Kevin Wong, CEO of BRDGE, said, “We hope to take digital financing further, and to become not just another crowdfunding platform, but one that is able to exhibit foresight and build trust to help fellow local businesses and entrepreneurs grow.”
Southeast Asia’s largest SME digital financing and debt investment platform, Funding Societies specializes in short-term financing for SMEs, funded by individual and institutional investors. Launched in 2015, it aims to uplift societies in Southeast Asia by creating financial opportunities for everyone, especially SMEs.
The platform offers various financing options, including micro loans and term loans, with interest rates typically ranging between 8% and 18% per annum. Investors can start with a minimum investment of S$20.
John Adams wrote in a Google Review that Funding Societies offer a seamless way to invest in relatively risk-free debt instruments.
Minterest is a notable low-fee option for individuals seeking short-term crowdfunding investments. It charges a competitive 15% fee on all interest earned and has lower than average default rates, typically between 0%-1.62%.
However, it primarily offers short-term investment opportunities (up to 12 months) in corporate financing and real estate. Minterest stands out for its competitive asset quality and quick funding of deals, with 88% funded in 1 day.
Founded in 2015, Validus is a P2P lending platform for SMEs that has exceeded S$1 billion in disbursals across the region. It connects growing SMEs to accredited and institutional investors for fast, secure, collateral-free financing. Validus operates in several Southeast Asian countries and offers short-term unsecured financing up to S$150,000. It provides an accessible platform for SMEs to fund their growth and for investors to start with S$50,000 per portfolio.
Diajeng Reisa wrote in a Google Review that the Validus P2P lending platform is a reputable loan partner in Singapore.
This platform is a P2P invoice trading marketplace allowing businesses to sell invoices at a discount rate to investors. It offers accredited investors high returns on short-term invoices, with annualized returns of 11-25% depending on the risk grade of the invoice.
The platform has seen over S$170 million worth of invoices traded as of October 2017. It requires a minimum investment of S$50,000 and focuses on providing accessible capital for SMEs in Singapore to fund their growth.
It’s known to be one of the newer entrants in the P2P lending space in Singapore. Crowd Genie aims to provide capital access to SMEs that cannot meet the requirements of traditional financial institutions. The platform uses a combination of machine learning algorithms and hands-on groundwork to assess the credit risk of potential borrowers. It was granted a securities license by MAS in March 2017.
Investing in P2P Lending
- Research and Choose a Platform: Evaluate various P2P lending platforms. Consider factors like platform reputation, default rates, types of loans offered, and fees.
- Understand the Risks: Acknowledge the risks involved, including borrower default and platform solvency.
- Create an Account: Register on your chosen platform. This usually involves providing personal identification and bank details.
- Undergo Verification: Complete any required verification processes set by the platform, which may include credit checks or investor qualification tests.
- Set Investment Goals: Define your investment objectives, such as income generation, diversification, or supporting specific types of borrowers.
- Assess Loan Opportunities: Review available loans or borrower requests. Analyze factors like loan purpose, duration, interest rate, and borrower creditworthiness.
- Diversify Investments: Spread your investment across multiple loans to mitigate risk.
- Invest and Monitor: Start investing in selected loans and regularly monitor the performance and repayments of your investments.
- Reinvest or Withdraw Returns: Decide whether to reinvest the returns into new loans or withdraw them.
1. Is P2P legal in Singapore?
Yes, P2P lending is indeed legal in Singapore. It is regulated by the Monetary Authority of Singapore (MAS), ensuring a structured framework for both borrowers and lenders. The platforms need to comply with stringent regulations to operate, providing you with a secure environment for your financial dealings.
2. Is P2P lending a good investment?
P2P lending can be a potentially lucrative investment with higher returns compared to traditional bank savings and investment options. However, it also carries risks like borrower defaults and platform stability. It’s important to assess your risk tolerance and perform due diligence before investing.
3. What is the best P2P lending platform?
Identifying the “best” P2P lending platform depends on your specific investment goals and risk appetite. Funding Societies has established itself as a prominent player with a government-registered escrow account. Research and compare platforms to find one that aligns with your requirements.
P2P lending has established itself as an innovative financial tool in Singapore, enabling you to borrow money without traditional intermediaries. This FinTech solution is underpinned by a regulatory framework set by the Monetary Authority of Singapore, providing a secure and transparent platform for both investors and borrowers.
- P2P lending platforms in Singapore offer a straightforward way to access financing, such as business or personal loans, or to invest, with minimum investment amounts often being very accessible.
- The P2P lending space is regulated by the Monetary Authority of Singapore (MAS), ensuring that platforms adhere to specific standards for safety and transparency.
- Platforms showcase the potential for attractive returns, signifying that P2P lending can be a lucrative component of an investment portfolio if approached with due diligence.
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