Small businesses are the backbone of Southeast Asia’s economy, but many struggle to get working capital loans because they don’t have a traditional credit history or collateral, say the founders of finance companies. The fintech, which claims to be the region’s largest SME digital finance platform, uses alternative forms of credit scoring and has disbursed over $2 billion in finance to MSMEs since its launch in 2015. Today, the finance companies announced that they have raised $144 million in an oversubscribed Series C+ round led by SoftBank Vision Fund 2, with the participation of new investors like VNG Corporation, Rapyd Ventures, EDBI, Indies Capital, K3 Ventures and Ascend Vietnam.
It has also received $150 million in lines of credit from institutional investors, some of which have been drawn down since last year.
TechCrunch first covered funding companies when it raised its Series A in 2016. The company’s previous round was a $45 million Series C raised between 2020 and 2021. Part of its new funding, or $16 million, will be distributed to former and existing employees through its stock option plan in the form of share buybacks.
The company was founded in 2015 by Kelvin Teo and Reynold Wijaya after they met at Harvard Business School. It is now licensed and registered in Singapore, Indonesia (where it is known as Modalku), Malaysia and Thailand. He recently started operating in Vietnam and will use part of his C+ series to enter the Philippines.
The platform provides online loans ranging from $500 to $1.5 million. Since its launch, it has disbursed over $2 billion in business finance to MSMEs through over 4.9 million loan transactions. Funding company customers range in size from corner stores and e-commerce sellers to mid-sized businesses, such as fast-growing startups and established corporations, who want to access revenue-based funding faster than bank loans, which typically take about two to three months to disburse, Teo tells TechCrunch.
A recent impact study calculated using Asian Development Bank methodology showed that MSMEs supported by finance companies contributed $3.6 billion to GDP and 350,000 jobs.
By covering a wide range of businesses, Teo claims finance companies have better customer acquisition costs and better loan-to-value ratios. It also accumulates data faster to train its data scoring models, which draw on traditional and alternative data sources. Traditional sources include bank statements and credit bureau information, where available, while alternatives may include transaction information, online reviews, and supply chain data feed.
One of the advantages of finance companies is that some of their data sources are proprietary, while they have exclusive rights to others through partnerships. This gives the startup an edge over new players, Teo says, as well as the amount of loan repayment data finance companies have collected since its launch. He added that the default rate of finance companies is between 1% and 2% even during the COVID-19 pandemic, which is why she was able to receive lines of credit from so many institutions.
Interest rates from finance companies are usually higher than those from banks, but less than or equal to those from credit cards. In fact, they offer a credit card with a debit line to replace corporate cards. It also partners with companies including e-commerce platforms like Shopee and Bukalapak, accounting app BukuWarung, fintech Alterra and agritech platform Tanihub that provide access to working capital loans to their SME clients. .
Teo and Wijaya argue that the main competitors of finance companies are not banks. Instead, Teo says many of his clients relied on loans from friends or family, savings and personal credit cards to fund their businesses. “The opportunity is huge because it’s a quality financing gap of US$300 billion,” he says.
In a prepared statement, SoftBank Investment Advisers Managing Partner Greg Moon said, “SMEs in Southeast Asia have historically struggled to access institutional funding and instead have been forced to rely primarily on personal financing to support growth. Finance companies are building a bridge for these companies to access more sustainable and cheaper finance by creating unique datasets of their performance and using AI-based technology to assess their creditworthiness more efficiently than traditional models.