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Indonesian P2P Lender Hatched at Harvard Rises in Booming Market - Nikkei Asian Review

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  Modalku focuses on financing for smaller businesses, like Sri Cahyaningsih's pet food shop in Jakarta. She had struggledto secure loans until she found the startup online. (Photo by Dimas Ardian) STARTUPS IN ASIA Indonesian P2P lender hatched at Harvard rises in booming market Modalku and regulators learn from China as loans swell past $3bn ERWIDA MAULIA, Nikkei staff writer AUGUST 16, 2019 13:19 JST  JAKARTA -- Harvard Business School students Reynold Wijaya and KelvinTeo knew they wanted to start a company, they just did not know whatkind. Five years later, they find themselves at the forefront of a SoutheastAsian peer-to-peer lending market that has been something of a WildWest, but that looks to be entering a promising new phase.  Kelvin and I ... were looking for ideas of businesses that had the potentialto become very big and impactful enterprises, Wijaya told the NikkeiAsian Review recently, sitting cross-legged in a cozy lounge at the West Jakarta office of the company the duo founded, Modalku. We saw theanswer in fintech. Which segment of fintech though? We felt that lendingis an interesting market. P2P lending connects individual or institutional investors with people orsmall businesses that need money. Although interest rates are higher thanthose charged by banks, they are typically lower than what loan sharksdemand. And the market is exploding: In Indonesia alone, cumulativeloans hit 44.8 trillion rupiah ($3.1 billion) in June, versus 284 billion rupiahin 2016, according to the country's Financial Services Authority, known asthe OJK. The number of borrower accounts totaled 9.7 million, up fromless than 40,000.Modalku arrived at just the right time.Wijaya and Teo established a lending platform called Funding Societies inSingapore in 2015, in the middle of their two-year program at Harvard. In January 2016, a few months before graduation, they entered Indonesiaunder 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 midsizeenterprises (MSMEs) in Southeast Asia's largest economy, which remainunderserved by traditional banks.The group's cumulative loans reached 8.06 trillion rupiah as of Fridaymorning, up 35-fold from the end of 2016, while borrower accountsswelled to 884,000 from under 300. Each number is equivalent to roughlyone-tenth of the overall market in Indonesia, which has powered the bulkof the startup's growth and is now home to more than half its 400-plusgroup employees.  Wijaya -- whose parents run a variety of midsize businesses, from milkcandy production to construction -- and the Malaysian-born Teo hadpitched their idea at a Tech in Asia competition in Tokyo in 2015. Thisbrought 1.7 million Singapore dollars ($1.2 million) in seed funding fromIndonesian venture capital firm Alpha JWC Ventures and Singapore PressHoldings, publisher of the Straits Times newspaper.Sequoia India and other investors pumped SG$10 million into the group ina Series A round in mid-2016, and SoftBank Ventures Asia led a $25 millionSeries B round less than two years later. Together, Modalku and FundingSocieties have raised $42.5 million to date, according to startup databaseCrunchbase. Modalku CEO Reynold Wijaya founded the startup with fellow Harvard Business School student Kelvin Teo. (Photo byDimas Ardian)  The investors saw the same thing Wijaya and Teo did: an Indonesianmarket with 63 million MSMEs, only 26% of which have access tofinancing, according to government data. A study by the OJK in 2016estimated that those businesses' annual unmet financing needs totaled988 trillion rupiah. Similarly, only 29% of Indonesia's 186 million lower-to middle-income working-age individuals have access to credit.This gap has attracted a horde of P2P players, legitimate and unscrupulousalike. As of June, 113 lending platforms were registered with the OJK,while the number of illegal operations is estimated at over 1,000. Theauthorities say many hail from China, where a crackdown on delinquentP2P platforms that began in 2017 sent some searching for opportunitieselsewhere.
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