Digital loans in Malaysia are becoming more prevalent as the tech-savvy, and young population takes on debt to fund their businesses, pay for medical emergencies, make investments, and more. As one of the growing fintech trends in the country, digital loans are borrowed amounts of money approved, processed, and channelled to the recipients through online channels. 

Lending online is convenient because the borrower can take out a loan from the comfort of their home. It is also fast, efficient, and secure and promotes inclusiveness in the financial world, accommodating people living in rural areas. Furthermore, banks, startups, and businesses in the financial field can earn profits by offering digital lending solutions to those needing funds urgently.

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In 2020, the Association of Southeast Asian Nations (ASEAN) began accelerating its digital transformation in response to the COVID-19 pandemic. This change empowered budding sectors like the financial technology (fintech) industry, providing vital monetary solutions in the region. Currently, fintech trends in Southeast Asia show that the digital payments sector will be the largest segment in 2023, achieving a total transaction value of USD 221.10 billion

Similarly, the fintech Malaysia ecosystem is growing, with the digital payments segment expected to be the largest this year and having a total transaction value of USD 23.38 billion. The desire to get more funding for startups, obtain money for personal use, or achieve financial well-being spurs Malaysians to seek solutions through digital loans. 

The state of digital loans in the Malaysia sector

Digital banks and fintech businesses in Malaysia give consumers instant loans with low-interest rates and flexible repayment options. Companies like BigPay, Touch ‘n Go (TNG) Group and Grab offer innovative, timely, personal financing solutions. TNG Group launched GOpinjam for its eWallet users, whereas Grab Financial Group Malaysia teamed up with Sedania As Salam Capital Sdn Bhd (SASC) to launch the Shariah-compliant financing product, Grab Cash Financing-i.

The growth of the digital lending sector is attributable to factors like increased internet access in Malaysia, widespread smartphone use, digital transformation of the country, and tech-savvy citizens. Moreover, the thirst for startup funding and the deterioration of the global and local Malaysian economy has led more people to seek digital loans to supplement their financial needs.

Malaysia’s currency (Ringgit) continued its downward trend against the US dollar due to worries over the US Federal Reserve raising interest rates. This threat of additional hikes is also becoming likely as the US Treasury Secretary, Janet Yellen, threatened China with severe consequences if the country provided Russia with weapons for its war against Ukraine.

According to the World Bank’s Malaysia Economic Monitor February 2023 report, there is a slowdown in the external demand for Malaysia’s goods. Economic recovery after the COVID-19 pandemic was slower for lower-income households than their wealthier counterparts. Nearly 70% of the poor said they lacked the funds to pay for their basic monthly needs.

Inflationary pressures have led the Malaysian government to subsidize the cost of fuel to keep the economy stable. Nevertheless, the increased government spending has raised debt levels in society, making revenue collection and efficient use of taxpayer money more critical. Food and utility prices are still rising, and living costs are high. 

Politics in Malaysia has been unstable in recent years, with rapid turnovers of government leaders. Uncertain political climates affect the business landscape, limiting investor desire to pump funds into various projects or startups. With many funding issues and personal financial challenges, Malaysians seek alternative financing solutions.

Outlook for digital lending in Malaysia

Even though the rise of digital loans in Malaysia offers promises to many people in need of money, there are concerns about the state of the sector. For example, while the modern route of obtaining loans is faster and more convenient, cybersecurity remains a significant challenge for ASEAN. Cybercriminals know how to exploit consumers online, and they may steal identities and try to obtain a loan, plunging their victims into financial oblivion.

Another issue is that many people do not have a credit history because they cannot access banks. This underbanking makes it complex for institutions to assess the credit risk of their loan applicants. People in rural areas have less access to loan facilities or have inadequate information to understand whether getting into debt is a good idea.

A third factor is the risk of supplementation of over-consumerism by people taking more loans than they can handle. The fintech Malaysia ecosystem can protect Malaysians from being taken advantage of by loan sharks by providing innovative and affordable financial solutions to rebalance the issue.

Despite these concerns, the fintech trends in ASEAN show that the sector is growing, and digital lending will become one of the largest segments in the region. The Malaysian government and other Southeast Asian governments should ensure safety, security, and the smooth running of the sector to enhance liquidity and economic growth.