Peer-to-Peer investment involves lending your money directly to individuals or businesses without going through traditional financial intermediaries such as a bank. Generally the process offers greater transparency and may offer a fairer rate of return than traditional investments but it does carry a degree of risk to your capital if the borrower is unable to repay their loan. In Malaysia, Peer-to-Peer lending is regulated by Securities Commission Malaysia.
FinPAL is a web-based Peer-to-Peer lending platform offering investors the opportunity to lend directly to Malaysia SME businesses.
As with any investment product, there are risks involved in P2P investing. One of the biggest risks that investors worldwide face is what's known as 'concentration risk'.
Concentration risk can be described simply as "having too few eggs in your investment basket". In other words, concentration risk is when your portfolio is too heavily weighted towards one particular investment or asset class. For example, let's assume that your entire portfolio consists of only 2 businesses. Were just one of these businesses to go bust, then you stand to lose a half (50%) of your wealth in a single hit. That's why investors tend to diversify by spreading their wealth around to properly balance their portfolio.
By spreading your capital across different investments, you reduce the impact of a single loan default.