Indonesian P2P lender KoinWorks aims to be an SME super app with new products

KoinWorks co-founder and chairman Willy Arifin

Having established itself as a major P2P lender serving Indonesia’s small and medium enterprises, KoinWorks says it is poised to aggressively expand its portfolio of products and services to become a “super app” for SMEs.

“Next year, SMEs will be in for a treat,” said KoinWorks co-founder and chairman Willy Arifin, without divulging too many details. “What we can say is KoinWorks will be an SME marketplace, where they can come in and get all their needs versus having to go everywhere for it,” he said.

The four-year-old company, that has been connecting retail lenders to borrowers from the start, already started diversifying its offerings this year, predominantly targeting retail lenders. Among the new features launched are KoinRobo, a robo advisor that automates lenders’ investments based on their risk appetite, KoinGold, a gold investment product, and KoinBonds, which gives lenders access to government bonds. It is also exploring other products, such as mutual funds.

These products would also be made available to its SME partners, who may no longer need to borrow money, and are looking to invest their earnings. The majority of the SME-focused offerings, Arifin said, can be expected to come next year.

Arifin, who is also an angel investor in several Indonesian early-stage startups, explained that KoinWorks prefers the current aggressive foray into new verticals, compared with spreading its wings geographically — a strategy that has also been adopted by peers Modalku and Investree.

The biggest opportunity, he emphasised, is on home soil.

Home play

According to a 2019 report by Google, Temasek, and Bain & Company, Indonesia still has around 47 million underbanked — those who do not use the full array of financial services — and 92 million unbanked adults. This, Arifin said, equates to a humongous gap in the market, signalling enormous growth potential.

“Indonesia has an $80 billion funding gap every year. Come on! You can raise five or 10 unicorns in this specific industry alone. Why bother to be anywhere else?” he joked.

Inevitably, this mouthwatering opportunity has resulted in P2P lenders mushrooming in Indonesia. Based on October data from the Financial Services Authority (OJK), the country currently has as many as 155 OJK-registered P2P lending companies. Of them, 33 are permanently licensed.

The competition notwithstanding, KoinWorks claims to have continued to grow, helped by its early-mover advantage in the market, among other things.

KoinWorks was founded in 2016 by Arifin and his collegemate Benedicto Haryono to bridge the funding gap through its online platform that connects retail lenders to borrowers — largely SMEs that are underserved by traditional financial institutions.

Buoyed by the now-abundant availability of “online fingerprints” — or the financial trail left behind by users on the internet — to assess the creditworthiness of borrowers, Arifin described his initial idea as a “raw diamond that needs to be polished”.

To help polish the diamond, KoinWorks roped in a host of reputable VC firms. Its $16.5 million Series A round in 2018 was backed by Mandiri Capital Indonesia, Convergence Ventures, Gunung Sewu and Quona Capital, while its $20 million Series B round earlier this year saw participation from EV Growth and Saison Capital. In April, it bagged an additional $10 million from London-based lending platform startup Lendable.

The injection of capital has not only grown its loan book but also fueled its growth from a four-person team in a co-working space in 2016, to 300 employees in an expansive office in 2020, disbursing some Rp300 billion ($21 million) loans monthly by 2019.

It appears that, as an early mover, KoinWorks has managed to establish a rapport with both the lender and borrower community. However, senior lenders have warned that, given the intensifying competition, this relationship is something KoinWorks cannot be complacent about.

“The P2P lending battle is now not only about having the coolest website or the most complete features, but about giving retail lenders a personal ‘human touch’. The retail lenders are small, but their voice is big. They are the ones who must be protected in order to become your brand advocate,” said retail lender and renowned P2P platform reviewer Adrian Siaril. 

Profitability within reach

If prior to COVID-19, the P2P competitive landscape was vaguely starting to shape up, the pandemic has clearly distinguished “the men from the boys”, Arifin argued.

As a whole, the P2P lending industry in Indonesia has been one of the many industries that was adversely affected by the COVID-19 outbreak. The impact of the pandemic on borrowers’ incomes led to an increase in non-performing loans (NPLs) for the industry, which has shot up to 8.27 per cent in September from 2.89 per cent a year ago, show data from OJK.

KoinWorks, which serves SME borrowers and claims to have around 550,000 users, says it had disbursed Rp2.5 trillion ($177 million) during COVID-19 and has kept its non-performing loans ( NPL) at below 2 per cent. Arifin attributes this to its focus on serving mostly online sellers, social commerce, and freelancers, which have fared well during the pandemic, as well as the responsible nature of its lending business.

In fact, KoinWorks says it is well-poised to turn profitable by the first quarter of 2021 after COVID-19 accelerated its path towards profitability. Arifin said, after cutting down marketing and other non-core expenses as a response to the crisis, the company has managed to drive efficiency, while disbursement is steadily returning to pre-pandemic levels.

He said the current path towards profitability has been a “welcome surprise” for the company, the bulk of whose revenue comes from monetisation of its lending service — taking commission for the repayment of loans, and picking up origination fees for the disbursement of loans.

Quona Capital, one of KoinWorks’s early-stage investors, which has continued to back the company in subsequent rounds, says turning profitable represents an “important milestone” for the company as it will be a validation of its business model.

“The perception that large topline numbers equate to being a leader is sometimes misplaced, since the real test is in monetisation, customer relationship, and retention,” said Quona Capital co-founding partner Ganesh Rengaswamy.

While profitability is claimed to be within reach for KoinWorks, Arifin hinted that, given the current circumstances in the market, KoinWorks may not want to rush in achieving the feat of booking a profit. “If the market recovers fast, we may like to take advantage and try to spend money to capture more of the market,” he said.

Such is his confidence in the direction KoinWorks is heading that Arifin says that he is looking to have KoinWorks join Indonesia’s unicorn club — something he said would be a personal accomplishment.

Earlier this year, KoinWorks was categorised as one of Indonesia’s early centaur startups by online portal DailySocial, indicating that the company commands a valuation between $100 million and $500 million. While Arifin did not divulge details about the valuation, he said he is hopeful of reaching the $1 billion valuation mark “not too far” from now.

“You tend not to chase it, but if it happens you just give yourself a pat and open a bottle of champagne. But you just have to keep working hard, try to innovate and break the industry,” he said.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.