INSUBCONTINENT EXCLUSIVE:
Funding Societies co-founders Reynold Wijaya and Kelvin Teo.Funding Societies, a peer-to-peer lending platform in Southeast Asia, said today
that it has raised a $25 million Series B led by Softbank Ventures Korea, the Japanese tech conglomerate’s early-stage venture capital
The round included returning investors Sequoia India, which led the Singapore-based startup’s Series A two years ago, Golden Gate Ventures
and Alpha JWC Ventures, as well as new backers Qualgro and LINE Ventures.Funding Societies also said it has raised credit lines from banks
and financial institutions to lend to small- to medium-sized businesses
Founded in 2015 by Kelvin Teo and Reynold Wijaya, the startup’s name represents its “vision of financial inclusion in Southeast
Asia.”Its Series B was oversubscribed, says Funding Societies, which operates in Singapore, Indonesia, where it is called Modalku, and
Malaysia.When it announced its $7.5 million Series A in August 2016, Funding Societies had disbursed $8.7 million Singaporean dollars, a
number that has since grown to $145 million SGD, chief executive officer Teo tells TechCrunch
Since its launch, the startup has increased its lender base to more than 60,000 and now claims a default rate of less than 1.5%, down from
about 2% to 3% two years ago, thanks to improvements in its underwriting model.In a press statement, Softbank Ventures Korea partner and
managing director Sean Lee said the firm “has been actively investing across Southeast Asia
SME digital lending across Southeast Asia is where we saw huge growth potential
Among many players, we were most impressed with Funding Societies for what it has achieved in a short period of time and its potential to
continue to become the number one player.”Though Teo says Funding Societies is “always exploring other markets, there is still tons of
work we need to do in our current three markets.” Despite its considerable growth over the past three years, the startup’s mantra is
“slow and steady,” a phrase Teo repeated often during our interview.“One of the key things we highlight is that it’s more important
for us to grow slowly and steadily instead of fast and recklessly, because it’s a trust-based industry,” says Teo.“We need to give out
loans and be able to collect them back, so we focus on learning the market, understanding the market and solving key pain points instead of
giving out a bunch of loans to chalk up high numbers and attract VCs.”For example, though the platform may offer personal loans in the
future, Teo said it currently only lends to SMEs because “we believe that we are strategically better suited to serving small businesses
and, in terms of our company’s values, we think that serving SMEs is an expansionary effort
Consumer financing, in our personal view, is more consumptive finance
It doesn’t help grow economies.”Many of the SMEs the company serves are very small
Some of its Indonesian borrowers, for example, make annual revenue of about $5,000 USD per year.“Many of these borrowers are seeking their
first business loan and do not have other sources of financing
A lot of financial institutions take a collateral underwriting approach and a lot of budding businesses would not be able to secure
financing that way,” says Teo.“But we also see some of them come to us as a form of top-up
They already have a bank loan, but it is insufficient for them, so they come to us because they are limited by the size of their collateral
Also, we are able to process financing faster than traditional institutions.”Funding Societies was created to give SMEs, many of which had
previously relied mostly on friends and family loans, access to more means of financing
The company points to a recent study by Ernst Young, UOB and Dun Bradstreet that says 65.2% of SMEs in Southeast Asia do not have easy
access to traditional business financing, even though most are open to other options, including peer-to-peer lending platforms.The company
says it was the first online peer-to-peer lending platform in Malaysia and that based on third-party data, it is now the leading SME lending
platform there, as well as one of Singapore’s three largest peer-to-peer lending platforms
It also holds sizable market share in Indonesia.Though its platform uses algorithms for initial application screening, a significant portion
of work, depending on loan size, is still done by Funding Societies’ employees, who have grown in number from 70 in 2016 to 165 now (Teo
says the company is currently hiring in earnest and willing to pay relocation costs for promising talent)
Almost all applicants talk directly to someone from the company
Micro-loans, which range in size from $500 USD to $40,000 USD, usually take about two business hours to approve and disburse, while
applicants for larger loans may have to wait a few days to about a week.“We’ve debated and discussed internally a lot if we leave too
much money on the table, because our default rate is lower than certain banks in the markets we are serving, but given that we are still at
a relatively nascent stage in the lending market and have no control over financial crises, it is more important to stay prudent than to
grow recklessly,” says Teo.This methodical approach is also important when entering new markets
Though many outside observers take the umbrella term “Southeast Asia” a little too literally, ignoring cultural differences between each
country, Teo says it is still a fragmented market, so financial service companies need to localize carefully
When Funding Societies enters a new market, it can probably port about 50% of its tech and business model from its previous market, but the
other half has to be built from ground up to account for economic and cultural differences, he adds.“SME financing is a very localized
With sufficient capital you can win the market and it’s really driven by subsidies and strong marketing,” Teo says
“But for SMEs, you really, really need to understand the local market.”