Roll on Crowdfunding in Malaysia
By Crowdfund Vibe staff writers
Late last week the Malaysian Securities Commission announced it was accepting the first applications for equity crowdfunding licences. This followed on from the release of new guidelines on 10 February that introduced requirements for equity crowdfunding platforms.
Malaysia is one of the first states in Asia to authorise equity crowdfunding, which the Government sees as an important and innovative new market structure to facilitate the growth of new small scale businesses. So what is the state of crowdfunding in Malaysia, a country that is the 3rd largest economy in South East Asia and the 29th largest economy in the world?
Global Crowdfunding in Malaysia
Malaysians have embraced rewards and donation based crowdfunding as an innovative tool to fund empowering and worthwhile projects, although overseas platforms are the most significant players at present.
US platform Indiegogo hosted one of the country’s most successful campaigns last year when FOBO tire successfully raised US$186,105 for the first Bluetooth Smart TPMS (Tire Pressure Monitoring System) that works directly with smart phones. In 2014 some 4,600 Malaysians contributed $1.349M to projects on Kickstarter, which is one of the highest figures in Asia. Much of this has been on international campaigns, as the platform only records 21 projects with a connection to the country – of which 9 have been successful.
Pozible, an Australian based platform, opened its doors in Malaysia in December 2013 . It has hosted over 80 campaigns since then, although only 7 projects have been successful – raising just over RM11,000. Singapore’s Crowdonomic also offers campaigns in Malaysia, however, despite its proximity it has only hosted three projects from the country.
Closer to home, there are some local platforms that have been gaining recognition, one of which is PitchIN. Launched in 2012, founders Kashminder Singh and Sam Shafie established this local platform to fill a niche that was lacking in the Malaysian business process. Their site allows innovators to pitch ideas or projects in categories such as Photography, Art and Design, Games, Music, Publishing, Technology, Film, and Video. In addition, PitchIN hosts community and social based initiatives that make up about one third of the site’s projects. Kashminder and Shafie vet all submitted projects and offer suggestions as well as consultations to help project initiators increase the odds of success.
Malaysia’s most successful platform, MyStartr, also started in 2012 in Kuala Lumpur. It is a general rewards crowdfunding website, mainly in the fields of film, music, art and design. Recognising the opportunity to assist these fields, the CEO Goh Boon Peng explains, “Our country has a pool of talent in these fields, but they lack the funds to realise their creations. The conventional method is to look for sponsors, but how many sponsors are there, and how many creative people can these sponsors support? That’s why Mystartr wants to provide an alternative.” The platform has been doing well in this regard, raising more than RM 1 million since it started.
Crowdfunding and Malaysian Cultures
Although the crowdfunding volume in Malaysia is still small and reception has been relatively slow, the industry is showing high growth rates and potential. This does not come as a surprise in a country where Malay, Chinese, and Indian traditions of giving and sharing thrive, thus making crowdfunding a powerful tool that fuels development in a vibrant entrepreneurial culture. Crowdfund investing is both fitting and significant for Malaysians. This is because the majority of the population are Muslims, and Islamic finance aligns well with equity crowdfunding principles with its in-built preference for equity over debt and strong heritage of linking the financial economy to the real economy. It opens up opportunities that can fuel economic growth, encourages risk sharing, financial participation, and ultimately channels savings to real economic activities. It also helps break down geographical limits for Malaysian entrepreneurs who are looking for investments to grow their businesses.
The Government’s Stand on Crowdfunding
Fully aware of the benefits that crowdfunding has to the economy of Malaysia, the country’s government has taken an active stand in promoting equity crowdfunding. The Securities Commission of Malaysia held a SC Synergy & Crowdfunding (SCxSC) Forum in September last year and released a set of rules and guidelines on equity crowdfunding in February this year. The key features of those rules are:
- Overseers of the equity crowdfunding sector of Malaysia (referred to as operators) are required to create an Equity Crowdfunding (ECF) platform, which will operate in a fair, orderly, and transparent manner.
- Malaysian entrepreneurs (known as issuers) in the form of locally incorporated private companies who are looking for investors are required to apply to operators to use their ECV portals.
- Operators have the freedom of denying platform access to issuers whom they deem unfit.
- ECF platform are permitted to post host offerings, educate investors on the offerings, and provide public communications about the offers.
- Equity crowdfunding investors have a cooling off period of 6 days in which they can withdraw the full amount of their investment.
- Issuers can raise a maximum of RM 3 million in a period of 12 months.
Crowdfunding is now considered one of the most empowering ways to jump start start-ups and provide the resources needed to grow business ventures and worthy causes quickly. The Malaysian government is taking steps to improve the environment for entrepreneurs generally and has taken a bold step to lead Asia by authorising equity crowdfunding. While it was rumoured that it would only authorise just two platforms while the sector was in its infancy the Securities Commission has clarified that there is no cap and that every application will be carefully considered. The initial platforms are expected to be operational by the second half of the year.
Already crowdfunding platforms have started to play an important role to help Malaysian entrepreneurs turn business ideas into thriving ventures. On a smaller scale than the GOBO tires example, entrepreneurial projects funded through the pitchIN platform include the Tee SomethingNice project and the Brand Aids project by Evelyn Samuel. The opening of equity crowdfunding will provide a new avenue of funding small businesses. As more and more success stories come to light, it’s evident that crowdfunding holds great promise for Malaysian entrepreneurs.