Homegrown Start-Up Modalku Aims to Help SMEs With Crowdfunded Loans
Jakarta. Modalku, a homegrown marketplace for peer-to-peer lending, wants to give Indonesia's small-and medium enterprises more access to funding through loans pooled from crowdfunding, joining a slew of startups financial services startups, also known as fintech, that have popped up in the past year.
The start-up officially launched its services on Wednesday, offering businesses swift access to non-collateral loans with interest rates between 15 percent and 20 percent at the click of a button. At the same time, it's promising and annual return of up to 18 percent to individual lenders who participate in crowdfunding the SMEs through the online platform.
"With Modalku's technology-based approach, we're very serious in dedicating time to push for access to SMEs that need working capital, in line with efforts to boost the country's growth," Reynold Wijaya, chief executive and co-founder of Modalku, said in Jakarta on Wednesday.
Iwan Kurniawan, chief of operations at Modalku, said the service intends to fill the funding gap for businesses that may be eligible for a loan yet are rejected by banks that typically demand collateral or a proven track record.
"There's a lot of room for improvement to help SMEs in Indonesia," he said. "We're a good complement for banks."
Modalku offers loans from Rp 50 million to Rp 500 million ($3,618-$36,180) with a tenor of three, six and 12 months claimed to be ready for disbursement within 10 days. Meanwhile, individual lenders are expected to place at least Rp 1 million in funds.
SMEs seeking for loans — with a turnover of at least Rp 20 million and led by an Indonesian national with a bachelor's degree — go through five steps in the application process. This includes a profile screening, an anti-fraud verification with a site visit and a psychometric test facilitated by financial technology company Harvard University's Entrepreneurial Finance Lab.
In the case of a bad debt, the startup has two schemes, including a restructuring program by Modalku on behalf of an individual lender, as well as the involvement of an established financial institution as a third-party in order to settle the dispute, according to Reynald.
"We also encourage lenders to diversify where they put their funds," he said, warning lenders against putting all their money in one basket.
The founders of Modalku first dabbled in peer-to-peer lending in Singapore with Funding Societies, which claims to have crowdfunded up to 3.1 million loans with a 97 percent success of repayment, before establishing the former in Indonesia.
The startup received a nod from former finance minister Chatib Basri, who said that Modalku could make an impact in boosting the growth of SMEs as well as bolstering financial inclusion efforts in the country.
A regulatory gap
Indonesia has seen an influx of fintech startup recently, such as Modalku and wedding-focused Wedlite, eyeing to cater to the country's ever-expanding pool of young and tech savvy middle-class consumers. The niche industry is forecast to rise to second place in terms of funding this year, after e-commerce, according to local media startup Daily Social Tech Startup 2015 report.
Such growth has caught the eye of regulators who welcomed the breakthrough, although they still cautioned startups to keep a prudent watch for bad loans and fraud.
Several fintech startups have already approached the Financial Services Authority (OJK), asking the regulator to legitimize their business in order to gain trust from both consumers and formal financial institutions, according to Hendriku Passagi, an OJK senior research executive.
"There is a regulation gap but Modalku showed good intentions by approaching regulators. One thing that we do stress is that in order to protect consumers, lenders shouldn't be allowed to pour all of their funds in one business alone," Hendriku said in Jakarta on Wednesday.
For now, he noted that any dispute within a platform, such as Modalku, can be brought to a civil court before any specific regulations are made in place.
"The main concern for OJK is protection for the lender in setting the interest rate as well as making sure the debt is paid off in time," he added.
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