This article first appeared in The Edge Malaysia Weekly on February 17, 2025 - February 23, 2025

The high-risk-high-returns business of lending is not meant for all and sundry. It is best done by financial institutions that have deep pockets and a well-established system to manage the risks of the business.

A company such as Revenue Group Bhd (KL:REVENUE), which is in the business of providing services for electronic and digital payment systems, is not really a financial institution. Its current business is generally confined to the provision of electronic payments via credit and debit cards while its digital payments segment is to facilitate top-ups of mobile phones, utility bill payments and game credits, among others.

Citing low margins from its current business divisions, Revenue is looking to undertake a rights issue to raise up to RM193.6 million, of which some RM147.5 million is to be used to diversify further into money-lending. The minimum amount to be raised from the exercise is RM13.5 million.

The rights issue with warrants comes with a very small portion being underwritten by its major shareholder. According to an announcement filed with Bursa Malaysia, Leong Seng Wui, who owns 5% of Revenue, has given his undertaking to take up his portion of the rights, which will require him to fork out RM9.7 million.

The company will procure an underwriter for RM5 million to meet the minimum subscription level of RM14.7 million.

This means that if the company hits its target of a maximum amount of RM193.6 million, the minority shareholders will be financing the bulk of the fundraising.

Revenue, which is already in the money-lending business with outstanding loans of RM10.3 million, is targeting small and medium enterprises and expects 25% of its net profit to come from the expansion of its lending business.

If Revenue’s strategy pays off, that is good for the company. But history has shown that most non-financial institutions that go into money-lending tend to lose money over the long term.

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