Harvard Business School students Reynold Wijaya and Kelvin Teo knew they wanted to start a company, they just did not know what kind. Five years later, they find themselves at the forefront of a Southeast Asian peer-to-peer lending market that has been something of a Wild West, but that looks to be entering a promising new phase.
“Kelvin and I … were looking for ideas of businesses that had the potential to become very big and impactful enterprises,” Wijaya told the Nikkei Asian Review recently, sitting cross-legged in a cozy lounge at the West Jakarta office of the company the duo founded, Modalku. “We saw the answer in fintech. Which segment of fintech though? We felt that lending is an interesting market.”
P2P lending connects individual or institutional investors with people or small businesses that need money. Although interest rates are higher than those charged by banks, they are typically lower than what loan sharks demand. And the market is exploding: In Indonesia alone, cumulative loans hit 44.8 trillion rupiah ($3.1 billion) in June, versus 284 billion rupiah in 2016, according to the country’s Financial Services Authority, known as the OJK. The number of borrower accounts totaled 9.7 million, up from less than 40,000.
Modalku arrived at just the right time.
Wijaya and Teo established a lending platform called Funding Societies in Singapore in 2015, in the middle of their two-year program at Harvard. In January 2016, a few months before graduation, they entered Indonesia under the Modalku name, which means “My Capital” in the local language. Since then, the group has dashed to the front of a crowded field, capitalizing on the huge financing needs of micro, small and midsize enterprises (MSMEs) in Southeast Asia’s largest economy, which remain underserved by traditional banks.
The group’s cumulative loans reached 8.06 trillion rupiah as of Friday morning, up 35-fold from the end of 2016, while borrower accounts swelled to 884,000 from under 300. Each number is equivalent to roughly one-tenth of the overall market in Indonesia, which has powered the bulk of the startup’s growth and is now home to more than half its 400-plus group employees.