Monday, August 31, 2015

The New Era of Crowdfunding for Businesses in Singapore

Investment scams happens everywhere in the world. How do we know which are investment scams and which are not? These are the normal questions we come across with. Are there viable indicators?

Recently, crowdfunding has started to gain my attention in the investment world. This is still something new in Singapore and many people are worried if it's a scam by itself since it is not regulated by the Monetary Authority of Singapore (MAS)? I was sceptical on it as well. Moving on, I did some research, met up with the people involved in one of the crowdfunding for SMEs called MoolahSense and strive to uncover the difference between investment scams and crowdfunding. I will share with you more on my findings in this post.

Credit: https://commons.wikimedia.org/wiki/File:Geefunding_crowdfunding.png

But before that, let's take a look at some of the worst investment scams in Singapore and see what really caused it to be a scam. There are certain told-tale signs if we look carefully.


Infamous Investment Scams in Singapore


1. Sunshine Empire 

A taxi driver invested $81K in Sunshine Empire and lost most of it. Sunshine Empire collected a total of $180M from Singaporeans and operated for about a year before the authorities stepped in. Sunshine Empire was a multi-level marketing company set up in 2006 promoting "lifestyle packages" and cash rebates if investors invest and buy their packages.

The interests given were as high as 10% a month. Yes its 10% a month, not a year, and people still believed in it. In an article on business times, it was revealed that investors were told that the company was developing theme parks in Malacca and Cebu, and was setting up a radio relay station in Taiwan on top of owning a number of franchises and that the high returns were generated from investments and businesses alike.

10% interest per month really sounded too good to be true. The business itself raised red flags when investors were buying lifestyle packages but were told returns were generated from investments in theme parks and franchises.


2. Geneva Gold

Geneva Gold is a gold buy back scheme which allows investors to invest in Gold and get a monthly interest for a period of time. Eventually, this would work out to be higher than the amount they initially paid. The interest paid was about 2% per month.

The scheme failed somewhere in 2012 and monthly payments were delayed. To me, it’s simply because the business model was not sustainable. Collecting money from investors to buy gold and later sell it at a higher price is what they did so they could pay the interest to investors. But when gold prices started falling, the scheme fell off completely. It is not sustainable in the long run.


Is Crowd-Funding a Scam? 

In this post, I'm going to focus on crowdfunding for businesses. This is something new in Singapore but not new in the US and UK. As this is still new in Singapore, the industry is not yet regulated by the MAS. But, is this a scam in itself? Let's take a look at what crowdfunding is to understand it better.

Crowd-funding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet. One of the crowd-funding platform for businesses in Singapore is Moolahsense. MoolahSense, as quoted on their website, is “a trusted P2B lending platform that empowers investors to stimulate economic growth by providing finance directly to growth SMEs, in exchange for an attractive rate of interest.”

MoolahSense co-founded by the CEO Mr Lawrence Yong, who has been a practitioner in the financial sector for the past 12 years, with experiences spanning private wealth management and investment banking. MoolahSense has opened up a whole new avenue for us ordinary investors who want a part to play in investing in SMEs in Singapore. Previously, only accredited or angel investors have the opportunity to invest in startups or SMEs.


How Does Crowd-funding Works? 

The investment opportunity provided by MoolahSense is essentially a bond-like program where one can lend money to the SMEs and get interest in return on a certain time period – either on a monthly or one-time basis. You can watch the below video on how it works:


Only 1 in 20 SMEs get funding from banks even though they contribute greatly in the economy of Singapore. Crowdfunding is a win-win situation for both SMEs and investors. SMEs get the funding they want and investors get the interest in return. 

SME Notes, something relatively new in Singapore

Crowdfunding at MoolahSense is an easy-to-understand concept. They bring companies and investors together.

In the world of investment, there are different types of bonds such as government bonds, corporate bonds and bond ETFs. One other type of bond is called the ‘SME notes’.

SME notes refer to a promissory note from one party to another that enables a payee to receive payments over a fixed period of time, ending with the date at which the entire loan is to be repaid. A form of investing in SME notes is via peer-to-business (P2B) lending.

P2B lending is a form of debt-based crowdfunding that allows individuals to lend directly to businesses, facilitated via an internet-based platform. Investors can earn attractive fixed yields, gain access to a new asset class, and invest in local growth businesses.

P2B lending is still relatively new in Singapore as compared to in the U.S., Europe and China. However, it is a global phenomenon that is gaining popularity in Asia. In Singapore, the pioneer P2B lending platform, MoolahSense, connects investors to high growth small and medium enterprises (SMEs) seeking short term financing, in exchange for attractive returns.

You can download a copy of an ebook on Fixed Income Returns 101 to learn more about the various ways to generate steady yields. Download it here


2 reasons why Moolahsense is Different from scams:
Investing through MoolahSense can yield you an interest as high as 20% per annum. 20%!!! This sounds like a scam. However, we have to note that this 20% is actually amortised thus the real return is only about 11% per annum. Interest can vary from investments to investments depending on the individual companies who issue the notes.

You may ask what is amortised? This simply means we are paid back a sum of money (plus interest), every month, instead of waiting ‘til the end of the year or ‘til the investment tenure expires. The interest is only charged on the remaining principle thus having a lower real return rate. If we invest $1000 on tenure of 12 months with interest at 10% through MoolahSense, we would get back $87.92 every month for the next 12 months. More is paid in interest at the beginning as principle is still high and lesser is paid in interest towards the end. It is the same as how most housing loans are amortised here in Singapore. This is how the investment works. You can refer to their website which has an online calculator here.

Finally, let's see why crowd-funding through Moolahsense differs from a scam?

1. They are the only known legally compliant debt based lending platform in Singapore

Over a period of 3 years, the founders have consulted intensively with the Monetary Authority of Singapore (MAS) to ensure that the business will not violate any existing regulations.

In the process, MoolahSense was given the ‘no obligation’ confirmation by the MAS to proceed with its current business model.


2. There are much easier ways to scam people, than to do a crowd funding campaign

Honestly, there are much easier and cheaper ways to scam people. Doing a crowd-funding campaign requires a fair bit of upfront work, not to mention the costs involved in shooting a good video, hosting an info sessions, etc.


Are you able to identify scams from real investments now? However, do take note that every investment has its risks even if it’s not a scam. It is recommended to understand and do some research to weigh your risks before investing in anything.

Check out Moolahsense website to find out more about the opportunities for SMEs funding and investments.


4 comments:

  1. Dear SGYI
    Can you also check out Funding Societies? https://www.fundingsocieties.com/ seems to be having a different operating model than MoolahSense.

    ReplyDelete
    Replies
    1. Hi,

      I do know of funding societies. How different is their model? I don't really see a difference

      Delete
  2. Our concern is the level of due dilligene conducted on these companies. When it goes bad, is there any real recourse action for the public? Or the company just declare bankrupt, close shop and say bye bye, suckers. BTW, it's stated clearly on Moolahsense website that "MoolahSense is not licensed and/or regulated by the Monetary Authority of Singapore". As usual, caveat emptor.

    ReplyDelete
    Replies
    1. Hi,

      Crowdfunding is not regulated by MASn now as its still a relatively new thing. MAS has done a public consultation and will be regulating this area soon. I'm sure crowdfunding will be more stable by then.

      Delete