Funding Societies is first crowdfunder to partner with trustee

FUNDING Societies has become the first and only homegrown peer-to-peer lending company to incorporate a trustee registered with the Monetary Authority of Singapore (MAS), which makes for a safer way of undertaking crowdfunding than other similar platforms.

This arrangement pioneered by the company, at just over five months old, offers protection against money laundering, which in turn builds trust between the borrowers and their investors, said Kelvin Teo, its co-founder.

Peer-to-peer lending or crowdfunding has emerged as an easier, faster way for small and medium-sized enterprises (SMEs) to take out loans, compared to the traditional route of borrowing from banks. Crowdfunding creates a direct lending relationship between borrowers and their investors.

Mr Teo noted that crowdfunding companies tend to take a more holistic approach when assessing an SME's requests for loans.

It is not just about looking at pure financials, he said: "We also look at the softer side of things by conducting site visits, looking at how the company is run and operated, as well as the individual owners themselves."

Crowdfunders also offer flexibility in that borrowers are not required to undergo stringent tests, which take time - and time may be of the essence for an SME when banks are not able to expedite their application for loans.

Applications for crowdfunding are accepted online at all hours of the day as well, and require little more than readily available information for the first assessment.

Mr Teo said Funding Societies guarantees a preliminary assessment of a loan in two to three days. With its diverse source of funding, SMEs can get their loans within 14 days, tops. He said this is generally twice as fast as other crowdfunding platforms, some of which can take up to two months to deliver the needed funds.

But he stressed that although Funding Societies provides a "faster, better and safer" process, it is important to foster a strong partnership between banks and crowdfunders.

"We are here to serve as a complement to existing financial institutions, to reach the under-served segment, and not as a replacement for other financial institutions," he said.

And having an MAS-registered trustee in the picture gives investors more confidence that their funds are going directly to the borrowers, he added.

Professor Julian Wright, head of the Department for Economics at the National University of Singapore (NUS) and mentor to Funding Societies, said a trustee relationship is fundamental to peer-to-peer lending.

"Once (platforms) have access to the funds, it is hard to control. A trustee relationship ensures that money is going directly to borrowers, and you cut out the risks that would otherwise arise."

Mr Teo said he expects that other companies will also adopt a trustee relationship, especially after seeing customers feel more secure with one present.

He also predicts that trustee agencies will be a mandated requirement on such crowdfunding platforms in the future.

He disclosed that Funding Societies recently implemented new e-signature technology into contractual transactions, which means borrowers sign just e-sign one document, instead of having to deal with multiple funders or investors, which can become cumbersome.

Mr Teo said: "We are introducing more features to make the whole user experience a lot more superior to those of other players."

Funding Societies engages actively with the MAS, so that it stays ahead of regulatory frameworks that may come about.

The company took part in the Securities Crowdfund Consultation this February - even before it was incorporated. It is also in contact with MAS through the FinTech & Innovation Group (FTIG), a group set up within MAS about three weeks ago and responsible for regulatory policies and development strategies to facilitate the use of technology and innovation to manage risks, enhance efficiency, and strengthen competitiveness in the financial sector.

Mr Teo said he is optimistic about the prospects for crowdfunding in the Singapore. But he added that while the MAS has been quick off the mark to develop a regulatory framework for the industry, regulations still need to be put in place before the industry expands further.

And if anyone thinks it is anaethema to hope that more regulations are imposed, he has this to say: "We've always been ready for regulation from Day 1. We hold ourselves at the utmost professional standards."

Funding Societies, also the only crowdfunding company registered as a market place lender with the Accounting and Corporate Regulatory Authority (ACRA), is confident that new regulation will not disrupt its operations, although this may not be the case for its rivals.

Professor Wright said: "As an investor, I would feel more confident leaving my money (in a regulated company), so it would actually be a great thing for Funding Societies and for the industry."

Funding Societies is committed to its vision of helping SMEs grow, and to do so by being the only player to commission public surveys with more than 500 respondents.

The surveys have thrown up for Mr Teo three focal points to work on: customer education, the credibility of the industry and promoting a clear understanding of the regulatory framework.

He called for customer education on the business of peer-to-peer lending and the risks that come with it.

"There is not necessarily a perception of distrust; I think it is more that it takes time for an industry to mature and for people to understand it."

The company's survey revealed that only four in six people have heard about crowdfunding, and of the four, only half understand its process.

Another finding was that only four in 10 who know about peer-to-peer lending would consider taking part as investors.

The pie is thus still quite small, Mr Teo said. With peer-to-peer lending apparently still quite a foreign concept, it is thus essential for the industry to establish credibility and legitimise itself to gain investor trust.

Mr Teo, his sights fixed on growing Funding Societies into the best platform for crowdfunding in South East Asia, wants to help SMEs grow in the region.

The company aims to continue working closely with regulators to make regulations clear, form partnerships with banks and expand beyond Singapore.

With an office in Indonesia expected to be operational by December, Funding Societies plans to expand into Malaysia by next year.

As Mr Teo said: "We are looking to grow fast, and do it well."