P2P Lender Modalku Launches in Indonesia

Modalku has gone live in Indonesia, and I’ve been catching up with the co-founder Kelvin Teo to discover more about his new business and the state of the P2P space in Southeast Asia.

Last Wednesday, PT Mitrausaha Indonesia Group announced the launch of Modalku, the first peer-to-peer lending platform in Indonesia. Modalku – meaning "My Capital" in Bahasa – aims to provide support to the growth of local entrepreneurs and small businesses, as well as establishing an attractive investment alternative for lenders.

The company is run by Kelvin Teo and Reynold Wijaya, founders of Funding Societies, a peer-to-peer lending platform in Singapore. Kelvin provided me with more colour around the launch of the platform.

Modalku was established with the intention of filling the funding gap for businesses that often ought to be eligible for a loan, but that are rejected by banks, since they lack of the right amount of collateral or of a proven track record. The platform provides non-collateral loans with interest rates between 15 per cent and 20 per cent. Loans range from Rp50 million to Rp500 million ($3,618-$36,180) with a terms of either 3, 6 and 12 months. To be eligible for a loan, businesses must have a turnover of at least Rp20 million per month, with an operational history of at least 2 years. Investors might expect a return in the range of 12-18% per annum and they can start investing from Rp1 million, but with a minimum deposit of Rp10 million.

According to Kelvin, the alternative finance sector in South East Asia is just at the start of its journey, even though small businesses have been struggling to access capital from established institutions for a long time. The main hurdle to the growth of the local industry appears to be the extreme fragmentation of the region, composed of more than 10 single countries (Laos, Malaysia, Indonesia, Singapore, Thailand, etc.), each with different regulatory frameworks, market dynamics and cultures.

Kelvin commented:

”While there is demand for financing, AF remains nascent as the region is fragmented with more than 10 countries, each with its unique regulation and market condition.”

Referring to a report recently published by Deloitte, Kelvin argued that small and medium enterprises are critical to the economic development of Southeast Asian countries. Across five specific countries – Indonesia, Malaysia, Philippines, Singapore and Thailand – SMEs are said to contribute between 30% and 60% of gross domestic product (GDP) and employ between 60% and 90% of the total workforce.

Even though SMEs play a significant role in those economies, most have limited access to financing. Less than 60% of SMEs in the five countries have access to bank loans and approximately 50% of the SMEs are underserved by financial institutions. With the exception of Thailand, SME loan volumes in the region are less than 60% of their contribution to GDP, and constitute less than 20% of total loans. Naturally, this presents a sizeable opportunity for peer-to-peer players.

During the conversation, Kelvin was keen to highlight the fact that Southeast Asia is wholly distinct from both China and Australasia. But to what extent have the surrounding Australasian and Chinese alternative finance spaces influenced the Southeast Asian one?

Kelvin claimed that the influence of those markets has been only indirect so far, meaning that Australasian and Chinese platforms haven’t accomplished any oversee transaction in Southeast Asia yet, but the growth of their spaces has shown Southeast Asian SMEs that banks definitely aren’t the only ones able to lend money.

Kelvin added:

”The growth of AF in Australasia and China has increased the awareness of AF as a viable option in Singapore and Indonesia respectively, bringing us closer to tipping point.”

According to Kelvin, Chinese and Australasian incumbents have not expanded into Southeast Asia as they are still strongly focused on consolidating their businesses in their respective countries, where the entire spectrum of profit opportunities remain far from fully exploited. Additionally, he remarked that cross-border transactions would be extremely difficult to manage, since cultures, languages, market dynamics, regulations and other critical factors are profoundly different in Southeast Asian countries. “A transaction such as Funding Circle’s acquisition of Zencap would be impossible”, he claimed, referring to the deal that was concluded last October.

Lastly, Kelvin focused on the future of the industry in Southeast Asia. According to the Modalku boss, Southeast Asian people are extremely conservative and it might take a long time before new financing options, such as crowdfunding and peer-to-peer lending, are recognised as a valid alternative to traditional sources of capital.

Although the process will take a while, Kelvin argues that the widespread acceptance of new infrastructure is sorely needed in order to develop a flourishing local economy. The launch of Modalku is but a first step in the right direction.