Singapore fintech learns lessons from China and Greensill debt explosion

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HO CHI MINH CITY — Southeast Asia’s biggest lending startup is seeing a cautionary tale in China, where a decade of freewheeling digital lending growth has crumbled dramatically under the weight of fraud and fraud. repressions.

The region has benefited from “preemptive regulation” against bad actors, says Funding Societies, a Singapore-based firm that raised $144 million from investors led by SoftBank Group. And that’s why CEO and co-founder Kelvin Teo would be happy to see even more regulation — to some extent.

In an interview with Nikkei Asia, Teo said he welcomes balanced rules that ensure fintech like his is safe, but doesn’t “stifle” new fintech entrants. Escrow thresholds, for example, could be high enough to keep scammers off with funds, but low enough for startups to get in, he said. Teo addressed the same theme at an April conference by Endeavor Vietnam, an impact fund.

“As a region, we are very fortunate to have very forward-looking regulators, benefiting to some extent from China’s missteps,” he told the audience.

In 2019, thousands of Chinese peer lenders were wiped off the internet after Beijing tightened the screws on a shadow banking sector plagued by Ponzi schemes and cash shortages.

Southeast Asia seeks to avoid that fate and reduce risk in an online business that allows small businesses to get unsecured loans with just a few clicks and hours of waiting. Singapore launched a preemptive attack on equity crowdfunding risks, for example, introducing rules in 2016 before such a venture took off. Malaysia was “relatively proactive” in enacting similar rules in 2015, followed by more regulations for peer-to-peer lending, a Cambridge-led study on Asian alternative finance has said.

Funding Societies, which was founded in 2015 and officially added Vietnam to its markets in May, is a crowdfunding platform that allows individuals and organizations to invest as little as $20. It funnels money into small business loans, using artificial intelligence for credit scoring. It is the largest lending platform in the region by estimated valuation and says it has disbursed 3.34 billion Singapore dollars ($2.4 billion) with a default rate 1.34% in June.

He learned from meltdowns, not just in China but also at Greensill, which, like finance companies, was backed by SoftBank, touted its AI and worked in supply chain finance. This mysterious finance niche essentially gives vendors a cash advance on their invoices. Greensill imploded after the Financial Times revealed he lent heavily to a single client with suspicious invoices. Greensill’s main investor, Credit Suisse, then withdrew the funding.

“You shouldn’t have such concentrated exposure to a single borrower,” Teo said over video, adding that checking bills was also important.

The second lesson is not to rely so much on a single lender, like Credit Suisse, said Teo, whose company lists seven products on its site, from supply chain finance to property-backed debt.

Unlike a push for deregulation in other areas of finance, he called for regulation that “prevents errant gamblers from doing bad things”. But the founder also criticized the binding rules that protect incumbents from competition.

“Both extremes are bad,” he said.

Amateur investors flocked to debt crowdfunding. Legal safeguards to help them could include a cap on their loan exposure and standardized disclosures, such as default rates, Teo said. Another safeguard is escrow accounts.

“In China, you’ve seen platforms that run away with investors’ money because it’s just parked in their [own] bank account,” Teo said.

His company operates in Singapore, Indonesia, Malaysia, Thailand and Vietnam, with plans for the Philippines by the end of the year.

Southeast Asia has benefited, Teo said, being a few years behind.

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