Debt investing started in the US and UK slightly over a decade ago in 2005, and has since taken the world by storm. Its global value is expected to hit an astounding USD1,000 billion by 2050. In recent years, this form of alternative lending has been experiencing a steady shift to target the 640 million population strong Southeast Asian market, with Singapore and Indonesia amongst the most mature players.
Platforms that provides this form of investments in Singapore have raised business loans amounting to approximately USD163.75 million in 2016 alone. Under the Securities and Futures Act, such platforms are required to apply for a Capital Markets Services (CMS) license from the Monetary Authority of Singapore (MAS). This accreditation provides a regulated environment to protect stakeholders involved. Despite being a fairly adolescent industry, the Singapore market has grown considerably and should continue to grow in future.
Bridging the gap for SMEs and investors
50% of SMEs in five Southeast Asian countries, namely Indonesia, Malaysia, Philippines, Singapore and Thailand, are underserved by banks. Furthermore, SMEs’ brief operational or credit history, possible poor past financial standing, as well as a shorter-term loan preference make bank loans difficult to apply for or be approved. This is where debt investment platforms come in to help this group of businesses that are underserved by traditional financial institutions. Debt investment also presents an investment option for investors who are looking to diversify their portfolio, or simply don’t have access to most investment instruments due to the high capital required.
Opportunities for Debt Investing in Singapore
Debt Investing platforms leverage on advanced technology for increased efficiency to meet SMEs’ varying demands for working capital and expansion needs. For instance, business loan applications to Funding Societies via the FS Bolt App can be approved and disbursed as quickly as 24 hours. Because of this quick turnaround, SMEs that may need funds urgently turn to these platforms.
Risks and returns of Debt Investing in Singapore
Investors are able to invest by crowdfunding the business loans available on the platforms and potentially earn returns in the form of interests typically ranging in the mid to high single digits. The investment amount starts as low as $20 at Funding Societies, which investors can leverage on for their portfolio diversification. Depending on the loan product, payouts can be done monthly so investors get their investments and returns in a shorter time frame. Compounding returns, as well as a rather short learning curve, are also attractive incentives as well.
That said, repayments can be delayed or go completely unpaid. This is why it is imperative for the debt investment platform to first do a preliminary round of due diligence and present the facts comprehensively to investors, before allowing investors to decide whether or not to proceed. There is also a risk of the platform shutting down if it is not financially stable on its own. To mitigate this risk, debt investment platforms regulated by MAS are mandated to engage an independent escrow agent to handle all investor funds separate from its business account, such that the escrow agent can continue to manage funds even if the platform goes under. Funding Societies does just that to provide peace of mind to investors. As such, there is a need to do your due diligence and ensure such investments match your risk appetite.
Although debt investing is still a fairly young industry within Singapore, the demand is ever increasing. Given that 99% of businesses in Singapore are SMEs and that the returns on investments typically range in the mid to high single digits interest rate per annum, the platform serves both the needs of SMEs and investors in Singapore.
If you’re interested to find out more about getting your business financing or investing in debt investment, check out Funding Societies, the largest SME digital financing platform in Southeast Asia.
Join Funding Societies as an investor and start financing local businesses!
Sign Up Now