Why Malaysia Is the Next Big Frontier for Digital Lending Expansion

In our conversation with Vadym Bortnyk, Chief Business Development Officer of Space Crew Finance, we delve into the detailed strategies and vision behind their expansion into Malaysia’s digital lending market. Vadym shares key insights into the country’s economic opportunities, regulatory framework, and cultural dynamics that make it a prime destination for digital finance.

Hi Vadym! Why Malaysia? What makes this country the ideal destination for expanding your digital lending business?

When selecting a country for economic expansion, we analyse several factors, including the level of economic development, credit ratings, and average income. Malaysia stands out for its stable economy and high credit ratings. According to S&P, the country has a credit rating of A-, one of the best in Southeast Asia. Its GDP per capita in 2022 reached $11,372, and the average salary exceeds $700 per month.

This income level supports the viability of single-payment loans, with an average loan size of around $400. Additionally, Malaysia offers an open business environment that fosters economic growth. Despite being a predominantly Islamic country, Malaysia remains a secular state, ensuring freedom for businesses to thrive.

Moreover, the digital lending market is still underdeveloped, creating a unique opportunity. Currently, only two major international companies operate in this sector, leaving ample room for new players to establish themselves.

What is the economic situation in Malaysia, and what is its economy based on?

Malaysia is a country with approximately 33 million people, and its GDP in 2023 amounted to $430 billion. The economy is incredibly diverse. On one hand, Malaysia is a major producer of electronics, contributing 35% of its exports, with key trade partners including the United States and China. On the other hand, it’s the second-largest producer of palm oil globally, which also plays a significant role in its economy.

Additionally, Malaysia is a major hub for global trade. The Strait of Malacca, one of the world’s busiest maritime routes, sees over 80% of global oil trade passing through annually. Malaysia also attracts over 10 million tourists each year, further boosting its economy.

The country’s liberal economic system and world-class port infrastructure give it tremendous growth potential. In fact, Malaysia ranked 12th globally in the Doing Business ranking in 2020 and 25th in the Global Competitiveness Index in 2023.

How developed is the Malaysian market in terms of financial digitalization?

Malaysia is demonstrating rapid growth in financial digitalization, making it one of the most promising markets for online lending. Over 90% of the population has access to banking services, which is significantly higher than the regional average. Additionally, more than 80% of Malaysians actively use online banking for daily transactions.

The government is heavily invested in promoting the digital economy through state programs, creating favorable conditions for startups and tech-driven businesses. One standout feature is the widespread use of electronic wallets, adopted by over 65% of the population.

These wallets often integrate universal QR codes (QRIS), which simplify payments for both consumers and merchants. This combination of accessibility, innovation, and government support positions Malaysia as a leader in financial digitalization across Southeast Asia.

In 2023, the online lending market reached $1.5 billion, with an annual growth rate exceeding 10%, underscoring its potential for continued expansion.

Could you share more about the specific factors that tipped the scales in Malaysia's favor for your expansion?

Absolutely. The main factors that influenced our decision include:

1. High average income, which ensures strong repayment capabilities.

2. Successful case studies of similar businesses that validate the market potential.

3. Reasonable competition, with only two key players in the short-term lending market.

4. A regulated legal framework, which promotes stability and provides reliable data about borrowers.

5. Relatively low default rates, which make the market even more attractive.

How do Malaysia’s cultural and social dynamics influence your strategy and approach?

Malaysia is a highly multicultural country, with a diverse population comprised of:

• 70.5% Malays and other Indigenous peoples (Bumiputra)

• 22.9% Chinese

• 6.6% Indians

Religiously, the population is divided as follows:

• 63.5% Muslims

• 18.7% Buddhists

• 9.1% Christians

• 6.1% Hindus

This diversity contributes to a strong culture of financial discipline. Malaysians prioritize meeting their financial obligations, which creates a favorable environment for lending businesses. This cultural norm shapes our approach, focusing on trust and customer-centric services tailored to the unique needs of different demographic groups.

You mentioned studying competitors. How critical is this aspect to your overall strategy in Malaysia?

Competitor analysis plays a vital role. The presence of successful companies in our segment indicates that the business model works and complies with local regulations. However, an oversaturated market can lead to diminishing margins and increased risks as competitors target higher-risk client segments.

Currently, Malaysia has only two major players in the digital lending space, which is far from saturation. Moreover, the introduction of new competitors often expands the market by increasing public awareness of microloans. This creates a synergistic effect, especially in the early stages of market development.

During your roadshow in Malaysia, what were your primary goals, and what key discoveries did you make?

Our roadshow had several objectives:

• Meeting potential partners, contractors, consultants, debt collection agencies, marketing firms, and recruitment companies.

• Engaging with credit bureaus to establish partnerships.

• Agreement with a legal company regarding obtaining a license.

Key discoveries included:

• Confirmation of high-quality client data and borrower behaviour patterns.

• Insights into effective regulatory compliance and IT system development.

• A deep understanding of customer behavior, preferences, and the specifics of the Malaysian market, as well as approaches to structuring credit products.

How confident are you about navigating Malaysia's regulatory landscape and overcoming potential challenges?

Malaysia’s market is heavily regulated, which we view positively. For online lending, two licences are required, including a specialized licence for digital loans. Only 40 companies have successfully obtained this licence, underscoring the stringent compliance standards.

Key requirements include:

• Robust IT systems, including penetration testing and ISO-standardization.

• Comprehensive business process documentation and secure client interactions.

We’ve developed a detailed roadmap in collaboration with local legal experts to ensure full compliance. To expedite our entry, we acquired an existing licensed company, allowing us to launch operations more quickly while adhering to all regulations.

What unique characteristics of the Malaysian market have stood out, and how are you navigating them?

A unique feature of the Malaysian market is the high percentage of customers who are culturally and traditionally responsible with their debts.

Additionally, credit history holds significant importance in shaping the behavior of borrowers.

Another interesting feature is the British-influenced legal and financial systems, which are familiar to us from other markets, such as Sri Lanka. This makes it easier for us to adapt and align our processes.

What strategies are you using to attract the right talent in Malaysia?

We’ve partnered with a professional recruitment agency to source and evaluate candidates. Additionally, we’ve appointed an experienced country manager with a background in lending and collections to oversee the project locally. This combination ensures that we build a strong, capable team to drive our operations in Malaysia.

How do you approach risk management in this market?

We rely on credit bureaus like Experian and CTOS, which provide comprehensive data and risk evaluation tools. Their databases include both government records and alternative commercial data, enabling us to assess credit histories accurately.

We also leverage advanced anti-fraud technologies, such as 3D Liveness verification and document authentication, which have proven effective in other markets. Additionally, Malaysia offers the ability to verify bank account ownership before disbursing funds, ensuring a closed-loop system for risk and fraud management.

What are your immediate priorities and goals for the first half of 2025 in Malaysia?

Our top priorities are:

1. Finalizing the acquisition and regulatory approval for the company.

2. Setting up an office and forming a local team.

3. Adapting our IT system to meet regulatory requirements and conducting penetration tests.

4. Integrating payment systems and credit bureaus.

5. Launching marketing campaigns and issuing the first 1,000 loans within four months.

In conclusion, what makes Malaysia the optimal choice for your expansion?

Malaysia’s stable economy, favorable business environment, and untapped lending market offer a rare combination of opportunity and potential. With strong cultural financial discipline, a regulated framework, and low competition, the country provides an ideal setting for our business. By leveraging our expertise in IT, marketing, and risk management, we are confident in our ability to establish a sustainable presence and drive growth in Malaysia.