CROWDFUNDING AS AN ALTERNATIVE FINANCING FOR SMES AND START-UPS IN MALAYSIA: AN INTRODUCTORY NOTE FROM THE LEGAL PERSPECTIVE

Abstract

Small and Medium Enterprises (SMEs) and start-ups have consistently contributed to a country’s tax revenue, technology advancement, and innovation, job creation as well as economic outputs. However, they are facing great challenges or setbacks in securing funding from external sources. To overcome the fundraising issues or financing lacuna, many entrepreneurs have resorted to crowdfunding as an alternative source of their equity or debt financing. Crowdfunding, being a significant aspect of the recent fintech innovation and digital disruption, has been put under the spotlight and received high expectations from all stakeholders to be an effective solution to SMEs and start-ups. This article would be focusing on crowdfunding with financial returns, namely, equity crowdfunding (ECF) and crowdlending/peer-to-peer lending (P2P). The research methodology employed by this article is primarily based on the literature review of various legislations, scholarly articles, research papers, government policies, books, and other publications concerning the ECF and P2P from different disciplines. At the end of this article, the author opined that crowdfunding could be a useful alternative financing method for SMEs and start-ups in Malaysia as it helps the capital formation and bridges the financing gaps for them. Countless benefits could also be offered to the society and economy at large with the proper crowdfunding regulations in place. Upon reviewing the Guidelines on Recognised Markets issued by the Securities Commission Malaysia (Guidelines), the author argues that the Guidelines is a carefully crafted and balanced regulation, albeit there is room for improvement.