This article first appeared in The Edge Malaysia Weekly on July 10, 2023 - July 16, 2023

PUTRAJAYA’s co-investments alongside private investors in equity crowdfunding (ECF) and peer-to-peer (P2P) financing platforms via Malaysia Co-investment Fund (MyCIF) have encouraged institutional investors to put their money in such alternative financing platforms.

The government’s skin in the game has made the difference for institutional investors, which did not view alternative financing as an asset class since the sector does not typically fall within the definition of securities, and therefore was deemed unsuitable for most professional fund managers looking for higher returns on investment, the MyCIF steering committee tells The Edge in an interview at the co-investment vehicle’s headquarters in Kuala Lumpur.

MyCIF chairperson Wong Huei Ching, who is an executive director at the Securities Commission Malaysia (SC), and Nomura Asset Management Malaysia’s former managing director and country head Rejina Abdul Rahim, who is now an external adviser to the global financial services group, point out that individual private investors tend to be the ones looking more aggressively at alternative financing than institutional investors. However, perceptions are changing.

MyCIF is not a grant, but rather a co-investment fund. Hence, it is actually following the crowd, they explain. So, the fund is lending credence to the trust it places in its investors for that which they seek — viable returns. And since it puts no money down, that raises the credibility of these companies.

MyCIF is a public-private co-investment vehicle administered by the SC on behalf of the Ministry of Finance (MoF). It was formed under Budget 2019 to co-invest in micro, small and medium enterprises (MSMEs) and social enterprises.

“This year, RM40 million has been allocated under Budget 2023 to MyCIF as a matching fund to support alternative funding methods, bringing the available accumulated funds under MyCIF to RM300 million. This is in addition to other Budget 2023 measures to expand capital funding opportunities for highly innovative start-ups. For example, government-linked investment companies will set aside RM1.5 billion this year to invest in such home-grown start-ups,” says Treasury secretary-general Datuk Johan Mahmood Merican.

“We are confident that initiatives like MyCIF will strengthen the local start-up ecosystem and enhance its regional and international competitiveness. As seen at the height of the pandemic in 2020, MyCIF implemented a higher investment ratio to address the financing gaps. This has catalysed more than 209% growth in the total amount raised between 2019 and 2021 (from RM441.56 million to RM1.37 billion) and 45% growth in the number of issuers on ECF and P2P platforms over the same period,” he adds.

Data from MyCIF’s 2022 annual report shows that the fund had co-invested RM638 million in almost 35,000 ECF and P2P financing campaigns from its inception in October 2019 to end-2022, benefiting 3,635 Malaysian MSMEs. Last year, institutional investors made up more than half (52%) of the total investments in the alternative financing space, followed by retail investors (27%) and others (21%).

The majority of private investors were local, contributing 98% to the total investments while foreign investors made up the remaining 2%. Overall, private investors comprising retail, angel, sophisticated and institutional investors had invested more than RM3.8 billion in about 55,000 ECF and P2P financing campaigns.

“MyCIF was created at a time when the venture capital industry was just picking up steam [globally and] in Malaysia. We realised that a capital market cannot simply be a one-size-fits-all. Beyond Bursa Malaysia, there is a need for more marketplaces to cater for the different stages of businesses,” says Wong.

In a June 12 statement, the SC noted that the total funds raised by ECF and P2P financing platforms in 2022 rose to RM1.7 billion from RM1.4 billion in 2021. The 26% year-on-year growth in the overall ECF and P2P financing markets reflected the growing investor and business interest in alternative financing options, as did MyCIF’s investment of RM282 million in 2022 and RM193 million in 2021.

“The co-investment amount of RM638 million is almost three times the finance ministry’s allocation of RM230 million. Grants won’t bring better returns, in addition to the fact that there is a lack of control. Therefore, for both private and institutional investors, the government’s money [in the fund] speaks volumes,” says Rejina.

As for how the co-investment model benefits private investors, Thomas Tsao, MyCIF steering committee member and co-founder and managing partner of venture capital firm Gobi Partners, explains that this is possible as the model creates a multiplier effect by crowding in private investors at scale.

“MyCIF is a breakthrough in creating a scalable framework to encourage more participation from angel investors and accredited high-net-worth individuals. In turn, this has created a vibrant and healthy ecosystem to encourage entrepreneurship in Malaysia. Perhaps the MyCIF model will be adopted by other countries in the region,” he says.

The steering committee members stress that in 2023, MyCIF will continue to spur growth in areas that have been identified as strategic to the Malaysian economy, in particular, by continuing its existing initiatives for agricultural businesses, as well as extending a similar 1:2 co-investment ratio to the environmental, social and governance (ESG) sector.

“As the cost of key technology components come down, the next big wave of innovation will take place in the agricultural tech space. It is much needed as we figure out how to feed the planet in a healthy, sustainable and regenerative manner. MSMEs are more ready [for digital adoption] than people think,” says Tsao.

“With MyCIF, or even ECF and P2P players, businesses can raise small amounts of funding first, then grow and prove their pilot, and repeat. We have seen some players do so successfully,” says Wong.

The steering committee members point to technology-first co-farming company Fefifo, which raised RM3.1 million via MyCIF in October 2020 for its expansion into a total area of 10 acres of modern commercial farming operations. It subsequently attracted institutional investments of US$3.1 million (RM14.4 million) from RHL Ventures, KB Investment and Quest Ventures.

In the renewable energy space, Green Lagoon Technology raised RM7.5 million in June 2022 to expand its production capacity to 10 power generation plants with a power export capacity of more than 15.35mw per hour.

In April 2020, insurance technology (insurtech) player PolicyStreet raised RM5.3 million, which was utilised for partnership and product expansion plans such as collaborating with Foodpanda Malaysia to provide insurance to its delivery partners and AirAsia to offer digital car insurance. PolicyStreet was then primed for regional expansion after being granted the Australian Financial Services Licence by the Australian Securities and Investments Commission, subsequently garnering institutional investments totalling RM99.8 million from Altara Ventures, Auspac Ventures, Gobi Partners, the Leong family of Mah Sing Group, and Khazanah Nasional Bhd.

“For Bursa, an upcoming pipeline of new companies is needed to boost the viability of Malaysia as an investment destination,” says Rejina. She points to the country’s position in the MSCI AC Asia Pacific ex Japan Index, which stood at 7% in 2003 but now hovers at about 1.7%.

Developed markets on the index, which was launched in December 1987, include Hong Kong, Singapore, Australia and New Zealand. Whereas emerging markets include India, Indonesia, Malaysia, Thailand, the Philippines, Taiwan, China and South Korea.

“Within Asian equities, Malaysia’s exposure to those indices used to be double digits, but we are now down to single digits. In order to strengthen viability, we need to grow that pipeline. There are many companies out there which are possible unicorns but those ideas will die if they don’t have access to financing,” says Rejina. 

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