What equity crowdfunding is

Equity crowdfunding (ECF) is online fundraising for start-ups and micro, small and medium enterprises. Investors put money into a company and receive shares in return, so they become shareholders.

Any return depends on the business. According to the SC, it may come from dividends, from selling the shares later, or from a future stock exchange listing.

Under the SC's rules, a company can raise at most RM20 million in its lifetime through ECF platforms, and it can use only one ECF platform at a time. Campaigns are "all or nothing": if the minimum target is not met, the money is returned to investors.

What P2P financing is

Peer-to-peer (P2P) financing lets businesses obtain financing from a pool of investors through an online platform. Investors buy investment notes or Islamic investment notes with a fixed tenure and an expected return, and are repaid in a way similar to a loan.

P2P platforms are for businesses only. The SC does not allow P2P operators to arrange personal financing for individuals.

Money from investors and issuers must be held in a third-party trust account. Operators must also publish details such as the issuer's purpose, financial information, the risk scoring method, default rates and all fees and charges.

Who regulates them

The SC regulates both. It registers ECF and P2P platform operators as Recognised Market Operators under its Guidelines on Recognized Markets. The P2P framework took effect on 2 May 2016.

A P2P operator must be a company with a minimum paid-up capital of RM5 million, and its directors must be fit and proper. ECF operators must be locally incorporated, carry out due diligence on issuers and keep investor money in a trust account.

The SC sets limits for retail investors. In ECF, a retail investor can put in up to RM5,000 per investment and no more than RM50,000 in a 12-month period. In P2P, the SC encourages retail investors to keep their total exposure to RM50,000 at any one time.

ECF investors also get a six-business-day cooling-off period to withdraw. The SC warns that investing in start-ups and early-stage businesses involves high risks, including loss of the money invested and difficulty selling the shares.

How to check that a platform is registered

Search the platform operator's name at sc.com.my/investment-checker. The SC Investment Checker covers registered market operators, and it flags names on the SC Investor Alert List.

The SC's Digital Initiatives page on sc.com.my also lists the registered ECF and P2P operators.

Check Bank Negara Malaysia's Financial Consumer Alert List at bnm.gov.my/fca as well. It names companies and websites that are not authorised or approved under the laws BNM administers.

Make sure the website or app you use belongs to the registered operator itself. If in doubt, call the SC on 03-6204 8999.

SmartChecker also shows register records and reviews for the companies it lists.

Common questions

Is my money protected on a P2P platform? Investor money must be held in a third-party trust account, and operators must have processes to manage defaults. The SC does not describe any compensation scheme, so losses are possible.

Can anyone invest through ECF? ECF is open to all investors, but retail investors are limited to RM5,000 per investment and RM50,000 in any 12-month period.

Can I get a personal loan through a P2P platform? No. P2P platforms in Malaysia are for businesses, not personal financing.

Is a crowdfunding platform registered just because it has a Malaysian website? Not necessarily. Check the operator's name with the SC Investment Checker before you sign up.