KUALA LUMPUR: Trade setbacks due to US tariffs and geopolitical tensions in the Middle East will have a limited impact on peer-to-peer (P2P) platform Funding Societies’ small and medium enterprise (SME) borrowers’ operational cash flow and creditworthiness, as most of them are domestically focused.
Group chief financial officer Junxiong Ho said that in the short term, Funding Societies’ portfolio review indicates that trade tensions and tariff-induced volatility will have a limited impact.
“For the medium term, we are watchful of the indirect, second-order effects of the tariffs on the overall economy and specific sectors, subject to our trade negotiations and responses by other major economies.
“The base scenario is that SMEs would see lower revenue and higher costs, but some sectors may benefit from additional orders due to trade diversion.
“Overall, as a niche player, the risk is manageable because our working capital loan tenures are short, allowing us to be nimble in adjusting sectoral focus, and we have successfully navigated other market shocks such as unprecedented pandemics and interest rate hikes,“ Ho told SunBiz.
He said Funding Societies has conducted an impact assessment on its portfolio, tightened credit parameters such as loan tenure due to medium-term market uncertainty, and implemented additional checks on SMEs with US exposures.
Explaining further on investor behaviour in response to these tariffs and market downturns, Ho said that early indications show a limited impact in the short term, given the domestic-focused nature of its SME borrowers, and the company is monitoring second-order effects.
“Our strategic plan for 2025 is to lend further into specific stable verticals and diversify funding, and also add resilience to our business.”
Although many of Funding Societies’ SME borrowers operate primarily within domestic markets, US tariffs would inevitably elevate their risk premiums, Ho said.
“This mirrors the impact of other significant market disruptions we have witnessed over the past decade, including sectoral recessions, the unprecedented global pandemic, and multi-decade interest rate increases.
“Despite these challenges, peer-to-peer lending and SME private debt remain compelling investment opportunities,“ he said.
Ho pointed out that investors are drawn to P2P lending for several key reasons: it offers competitive fixed returns, provides flexibility through shorter investment periods, ensures ease of access for investors, and delivers portfolio diversification benefits due to its relatively low correlation with traditional asset classes.
“Investors understandably inquire about our perspective, portfolio impact and precautions on tariffs.
“Our investor interests have remained strong, due to our diversified presence across Southeast Asia and our oversubscribed equity fundraise last year.
“Some investors even invest more, moving funds from public equity to us for private credit. However, if trade and market conditions don’t improve, we expect some investors to increase caution and invest less collectively,“ he said.
Ho noted that since the first US tariff announcement in April, central banks have indicated a willingness to cut interest rates and boost economic growth.
“With higher risk premiums for us, but lower interest in deposits and more volatile risk-return in other investment options, we see investors remaining steadfast in P2P investment for diversification and short-term fixed income, especially for investors who know our short and diversified loan portfolio, strict credit assessment and resilient organisation.”
As a fintech firm, Ho said, Funding Societies has been utilising data analytics and artificial intelligence (AI) to navigate and manage credit risk throughout the three-year pandemic and multi-decade period of high interest rates.
“However, generative AI further enables us to increase efficiency and accuracy across the entire end-to-end process, from sales to credit assessment, credit monitoring to compliance, and operations to collections.
“There is no silver bullet. Ultimately, we are combining our 10 years of knowledge and experience in SME unsecured lending here with tech to respond to the market uncertainties.”
Ho said that Funding Societies’ culture is to continuously improve, notably in resilience, diversification and nimbleness, to navigate new market shocks and take advantage of new opportunities.
“However, ultimately, a global trade war is a black swan event that severely impacts not only companies, but also nations.
“Certain government support, such as in Covid-19, would go a long way to protect the social and economic fabric of society and companies,“ he said.
