MicroLeap Helping Small Businesses Grow with Syariah compliant P2P Microfinance

Halalop editor, Shahfizal Musa spoke with MicroLEAP CEO and founder, Tunku Danny Nasaifuddin Mudzaffar, about microfinance and how peer-to-peer microfinancing helps financial inclusion for small businesses and micro-entrepreneurs.

Tunku Danny Nasaifuddin Mudzaffar is an experienced banker who wanted to change direction and give back to the community. He found microfinance to be a good alternative that can utilize his skills and experience as a banker, while at the same time give back to the community.

What is so inspiring about him, is his background. He should be addressed as Y. M Tunku Danny Nasaifuddin Mudzaffar meaning he came from accomplish and royalty family bloodline. He could have opened, a golf club or any other posh businesses. Instead, he chooses to provide microfinance to B40 and the poor. A segment of the population is regarded as financially non-viable by the banking institution.

Tunku Danny founded MicroLEAP using Shari’ah principles in P2P financing to enable access of microcredit or small loans to micro and small businesses. “I left banking to start MicroLEAP, a peer to peer (P2P) microfinance platform. MicroLEAP connects what we call investors, that is the lenders, through our platform, to borrowers, which are called issuers on MicroLEAP.”

Microfinance for Financial Inclusion

“As a banker, I was running a financial institution group where the clients were financial institutions such as other banks, insurance companies, asset managers where they were getting funded in the millions of ringgit. But I was thinking, how about the people on the street, the pisang goreng (banana fritters) sellers who sell on the roadside, who doesn’t need a million ringgit but may need RM10,000 or smaller.”

“So I thought there’s something missing here, there’s a gap in the market. Banks are not interested in this market as its too small, and there are government-linked institution that offer small loans.”

“Some of these revenue-generating micro-enterprises may need the step up to be the next small to medium size businesses.” According to Tunku Danny, that’s how the name MicroLEAP came about, where microfinancing can help the growth of micro and small businesses.

Financial Inclusion for Investors too

“I was looking for something that is good for the community. Your small amount of financing is making a big impact on people’s lives. Your RM10,000 will have a big impact on a small mom and pop store that needs that financing.”

The minimum amount to invest on the platform, as a microlender, is only RM50 and can be up to RM50,000. New investors on the platform get a free credit of RM10 to test MicroLEAP’s system.

Tunku Danny also disclosed that many of its lenders are also non-Muslims who are happy to invest in halal or Shari’ah-compliant offerings by the small, micro-enterprises on its platform. Investors, or micro-financiers on the platform can also be from any country, for as long as they are confident with holding Ringgit-based assets.

Small Loans – Microcredit for Small Businesses and Micro-entrepreneurs

“So my favorite example is the aunty in a small town in Malaysia, say Kuala Pilah, who needs financing of RM10,000 for her grocery shop, will be funded by 100 people. MicroLEAP does it in a Shari’ah-compliant manner.”

Essentially, P2P microfinance works as microlenders often pool capital to finance the borrowers. A microlender can begin lending with as little as RM50 to start with whereas a borrower can borrow from as low as RM1,000 and up to RM50,000 on the platform.

MicroLEAP is regulated by the Securities Commission of Malaysia, and is solely focused on microfinance and helping the micro-economy. According to the CEO, “We have helped pisang goreng (banana fritters) stall owners, online halal confectioneries entrepreneurs, bundle clothes (pre-owned clothes) sellers, and we are the only company that has financed businesses in each state in Malaysia.”

According to Tunku Danny, as MicroLEAP is an online platform, micro-enterprises, and small business owners from all over Malaysia have benefited from microfinance as they can easily apply online.

Lessons from Grameen Bank for Financial Inclusion

“Professor Muhammad Yunus who started Grameen Bank is one of my heroes. I had a chance to meet him when he came for a talk in Malaysia. Professor Yunus is the godfather of modern microfinance and he brought out this idea of cooperative support, where if one borrower is late or defaults, there will be a peer pressure from other borrowers to pay the monthly commitment,” said Tunku Danny.

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“So, Professor Yunus didn’t use the traditional credit scoring methods, which is one of the reasons MicroLEAP was set up. We found that there was a study by the Securities Commission of Malaysia that there were RM80 billion funding gap for micro and small and medium business enterprises.”

In general, banks’ credit rating systems are too strict for small businesses, and according to Tunku Danny, “revenue-generating micro-enterprises are not getting the funding they require”.

MicroLEAP is different from the Grameen model as it uses both the traditional credit risk scoring methods and alternative credit scoring methods which use algorithms that they have built. Their algorithm for credit scoring is based on ratings from credit reporting bureaus and psychometric tests of the borrowers to determine the loan recipients’ willingness to repay the small loans.

MicroLEAP Looking for Online Micro and Small Businesses

“Now we’re looking for viable small businesses to put on our platform.”

The P2P microfinance platform has enough micro-financiers on its platform who are especially hungry for Shariah-compliant assets. The platform currently has financed at least 85 borrowers with average microcredits of RM30,000. It is now looking for more micro-borrowers to match with its micro-lenders.

Prior to the pandemic, it had financed bazaar stall owners.

However, due to the pandemic, MicroLEAP is looking for micro-entrepreneurs and small businesses that also sell online. Borrowers must be Malaysian-registered businesses.

Also Read: How To Market Your Small Business Online During a Financial Crisis

“For example, we were happy to onboard a pisang goreng stall owner who sells from his stall in Johor Bahru, but also sell online through GrabFood (or FoodPanda), or Facebook, or through other online platforms,” the CEO further adds.

“If the businesses have online presence, then we’ll be happy to finance them.”

In addition, MicroLEAP provides free training on basic debt management, and basic bookkeeping, via video tutorials, as these small business owners might not have prior financial literacy training.

“So these financial literacy training is key so that when we provide the financing, they know what to do with it, so they’ll know how to manage debt, basic bookkeeping, and profit and loss.”

“That’s what I like about the P2P business model where everyone can help each other grow in the right direction.”

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