Jakarta. One new private investment fund in Indonesia has changed the traditional model of risk versus reward. Sindo Group, started by entrepreneurs Timothy Young and Brandon Conboy, is targeting the underdeveloped and long-avoided mom-and-pop (or Micro, Small and Medium Enterprises, MSMEs, etc) within the spice farming and manufacturing sectors.
According to a report by Indonesia’s Ministry of Trade, Indonesia exports roughly $500 million worth of spices annually. It is the country’s fourth largest export commodity with Indonesia as the second largest exporter of pepper globally. Despite its healthy exports’ contribution, 45 percent of this market is still run by domestic MSMEs, which are still underdeveloped and segmented.
To investors like Young and Conboy, this represented low hanging fruit in addressing a funding gap and earning more attractive investment returns than other asset classes.
What Young and Conboy didn’t expect was the social impact that came along with helping real people.
Sigit Ismaryanto from PT. Alam Sari Interbuana is one such person. He initially started as a construction worker on roads in Southern Indonesia. He had bigger dreams. As credit was abundant during the Megawati presidency, he was able to receive financing to start his own spice procurement business. He eventually expanded into infrastructure and manufactured foods distribution. The future looked bright.
However, due to a widespread crackdown of corruption within the government when President joko Widodo took office, access to financing dried up significantly. Although Sigit had operated his business by the books, he was still heavily impacted by this event. The bureaucracy and loan approval process in state-owned banks had become too burdensome and costly for businesses like his, with many shutting down unable to survive. Sindo Group saw this as an opportunity to step in as an alternative lender.
“The approval process was fast, and they cared very much about our business. They wanted to really understand it. It makes me hopeful for my business goals” said Sigit. He went on to say that Young made several visits to his operations and taught him how to optimize several aspects of his company from manufacturing to accounting.
Sindo Group was able to earn an IRR of 22 percent, which was an above average investment return, over a few short-term financing deals.
“I have grown my spice procurement business by five times with the help of Timothy and his partners” Sigit said.
This was only the beginning for Sindo Group, which initially started as an investment fund focused on distressed debt investing within the multi-finance industry. They had received backing from the Sinar Mas group and a few high-profile investors for this mandate.
However, the group realized the capacity for investment returns and change within the industry.
“Most of the funds in the industry are chasing after the extra percentage of returns through safe bets, including highly rated corporate debt or blue-chip stocks. An above 30 percent return is extremely hard to achieve, especially in a low interest rate environment and turbulent markets. There is not a huge appetite in investing in risky emerging market companies within the international investor community, much less MSMEs,” Young explained.
“As long as you put in the necessary controls, do your homework, and build relationships with your investees, you could potentially unlock huge upsides along with making the lives of those who feed the country better.”
The founders were acquainted through mutual friends. Despite coming from different backgrounds -- Young was previously a trader in HSBC New York, and Conboy was a corporate banker at DBS and Sinarmas Bank -- they shared the same passion for investments and the prospect of facilitating positive change in the country of their mother land, Indonesia.
After their experience with Alam Sari Interbuana, they learned that profitability and social impact are not mutually exclusive. By not only providing credit but by also educating owners of MSMEs on fundraising and adopting best practices for their operations, Young and Conboy believe there is huge potential to scale and grow the industry regionally, and perhaps, globally.
The goal for Sindo Group now is to focus on sourcing for investment opportunities within these underdeveloped and overlooked companies in the agriculture industries before moving on to other verticals. Their hope is that by building a strong record in investing in these companies, they will not only raise enough capital to fund current and future projects but to also redefine the nature of investing in Indonesia.