Even as Benedicto Haryono always harboured the vision of building a social enterprise in Indonesia, it was all about taking the right step at the right moment.
It was year 2014 when he decided to take the plunge and launch peer-to-peer lending platform KoinWorks in the archipelago in a bid to ease access to capital for the unbanked population across rural areas.
The seeds of the venture, however, were sown years after studying various fintech models, says Haryono, who now helms the lending firm along with his co-founder Willy Arifin.
Haryono reminisces how he went abroad to study the nuances of P2P lending firms, such as LendingClub and Prosper in the US, Funding Circle in the UK, and finally Lufex closer to home in China.
“Finance is a tool for an equal opportunity. People who are born from poor families have a smaller chance to become successful compared to those who are born privileged. It is because they would have many steps ahead in life, in receiving education or having a business opportunity,” he told DealStreetAsia in an interview recently.
The idea of launching KoinWorks is to cater to small and medium businesses where a majority of the owners and founders don’t have access to a full banking service.
According to a study by Financial Services Authority or OJK in 2016, the funding gap for SMEs stood at Rp 988 trillion, with only 29 per cent of a total of 186 million people having access to credit.
KoinWorks, says Haryono, has been established to exactly address this gap.
In addition to business financing and invoice financing, KoinWorks also provides businesses with access to low-interest loans. The firm identifies businesses, which are making great returns and in turn connects them to lenders.
KoinWorks claims to have established its presence in all the provinces of Indonesia.
As of June this year, the cumulative loan disbursement in Indonesia reached Rp 44.8 trillion ($3.2 billion), recording a significant jump from Rp 284 billion in 2016. According to data available with Bank Indonesia, out of 56.54 million businesses in Indonesia, as much as 70 per cent still do not have access to bank capital.
Haryono, who graduated from European and US universities, said the startup focuses on disbursing loans to e-commerce firms across the archipelago – it counts Tokopedia, Bukalapak and Shopee among its clients.
“We exist because we want to complement conventional banks in serving the small and medium businesses. We choose e-commerce businesses because they all have an online presence. The most important [thing to secure loan] is that they need to have a digital footprint,” he added.
Having completed four years since inception, the group has disbursed cumulative loans of Rp 1 trillion in the first half of this year, up from Rp 900 billion in the same period last year. It has as many as 130,000 borrowers and almost 200,000 registered lenders.
Going forward, the company targets to have at least 1 million borrowers and disburse cumulative loan of around Rp 2.3 trillion by the end of the year.
KoinWorks recently made headlines when it secured $12.01 million in a Series B funding round, co-led by venture capitalists EV Growth Fund and Quona Capital. The firm had previously raised a $16.5-million in a Series A round in 2018 from Mandiri Capital Indonesia, Convergence Ventures, Gunung Sewu, and Quona Capital.
The firm doles out loans between Rp 2 million ($356.27) and Rp 2 billion ($142,508) depending on the requirement of OJK, at annual interest rates hovering between 9 and 20 per cent.
Currently, KoinWorks offers a loan for up to 24 months and it is mulling to extend the timeframe to 36 months on a case-to-case basis.
P2P lending firms in Indonesia typically offer higher interest rates than conventional banks or government’s microcredit programmes such as Kredit Usaha Rakyat (KUR) that disburse loans at 7 per cent annual interest.
However, their interest rates are still lower than those that are being offered by unorganized players who still dominate smaller cities and rural areas across Indonesia.
A host of P2P startups have mushroomed over the past few years. These include prominent names such as Modalku, Akseleran, Amartha, and Investree – all of them having similar business models.
“We cover different segments. Other fintech firms, especially Modalku focuses on bigger loan disbursement, while we are serving mid-sized businesses,” says Haryono, adding that the firm approves loans between one and three working days depending on their assessment after necessary background checks.
Haryono says he always tries to maintain its nonperforming loan below 1 per cent –in July, it stood at 0.7-0.8 per cent.
According to global consulting firm PwC study, cumulative loan disbursement in Indonesia might reach Rp 233 trillion by 2020 from Rp 75 trillion in December last year.
Even as there is significant potential in the market, the industry is still staring at a few challenges.
On one hand, in August alone, the OJK granted licenses to as many as 128 P2P lending firms. On the other, it also announced that it shut down 826 illegal fintech firms to operate in Indonesia.
“Illegal fintech firms are indeed giving us and the industry a bad reputation, but we are always collaborating and working with OJK and that is why we always make sure that we do not cross any civil law, such as harassing and threatening borrowers,” he said.
Besides, infrastructure in the fintech industry is also one aspect that needs a massive leg up to keep pace with growth, said Haryono.
The government, on its part, is extremely keen to regulate the fintech industry, but the lack of digital infrastructure continues to be a barrier – payment and digital signing are not seamless processes yet.
In view of the aforesaid, these are still the early days for KoinWorks. Going ahead, Haryono keeps all options option to scale up – he does not know whether his company should go in for IPO, consolidate with another fintech firm or even become a potential acquisition target for larger firms.
“We still want to see our predecessor, the unicorns, to go in for IPO. We will support them for sure, but for us to conduct IPO, it is still a long way to go,” he added.
Haryono said KoinWorks is already profitable if the firm does not put a bulk of the funding into marketing costs, especially for Google and Facebook ads.
When asked about the next fundraising round, Haryono says he first wants to see how the business goes for the next 24 months.
“We just closed our Series B funding round several months ago, so we are going to focus to launch another product and serving the borrowers for now,” he adds.