The Asian Development Bank (ADB), which aims to support social and economic development in Asia, has published a working paper series in which it noted the intention to make investments in decentralized lending platforms in Malaysia is primarily driven by “trust.”
The paper points out that, in the past few years, there’s been significant growth in peer-to-peer (P2P) lending platforms. Because these new lending solutions are being increasingly adopted, it’s necessary to carefully examine the factors that have been influencing investors to allocate capital to decentralized lending solutions in Klang Valley, Malaysia.
As mentioned, the results indicate that “intention” to invest is mainly influenced by trust. Other factors that may lead to investors entering the P2P lending business include perceived ease of use, perceived risk, and platform security.
The P2P lending market is projected to grow from $26.16 billion in 2015 to $897.85 billion in 2024, according to Transparency Market Research (2015).
P2P lending has been disrupting traditional financial activities, as it’s playing a leading role in credit markets, the report noted.
However, critics of the decentralized lending platforms argue that such markets suffer from information asymmetry, inadequate credit assessment, and “potential high default risk.” These issues could pose challenges for new investors, the report states.
The paper also mentions that P2P lending is a type of crowdfunding that can provide alternative financing options for borrowers, such as small and medium-sized companies (SMEs).
The authors of the paper suggest that a “concerted effort for market presence should be made” by P2P lending supporters and regulatory authorities. Conducting seminars, roadshows, and conferences could help in marketing the benefits of the emerging decentralized lending ecosystem, the paper notes.