Filling the gap between investors and SMEs

  • First P2P lending platform to partner with escrow agency Orangefield
  • Disbursed S$2.4mil worth of loans in five months since official launch
Filling the gap between investors and SMEs

THE recent Financial Stability Review report by the Monetary Authority of Singapore (MAS) stated that small and medium enterprises (SMEs) could face financing challenges as banks were expected to be tightening their credit terms and conditions in response to economic uncertainties.
This has provided a window of opportunity for peer-to-peer (P2P) lending platforms in Singapore, as SMEs turn to crowdfunding to finance their business.
In just the six months since its official launch, P2P lending platform Funding Societies has managed to crowdfund S$2.4 million (US$1.7 million) worth of loans for Singaporean SMEs, the company claims.
Its marketing director Vikas Jain said that the successful repayment rate for the 29 loans given out was 100%.
“Our default rate remains at zero and we haven’t received any late repayment so far,” he told Digital News Asia (DNA) in Kuala Lumpur recently.
The Singapore-based startup was founded by former McKinsey and Accenture consultant Kelvin Teo, and Indonesian entrepreneur Reynold Wijaya.
It operates an online P2P crowdfunding platform targeted at Singaporean SMEs, hoping to fill the gap between SMEs and investors.
“These borrowers have either exhausted their loan limits from banks, or they don’t qualify for a bank loan,” said Vikas.
“Also, most banks in Singapore require companies to have a minimum of S$500,000 in turnover, but if you loan from us, it’s only S$300,000,” he said. [S$1 = US$0.71]
According to Vikas, with Funding Societies, the shortest repayment period for loaners is three months, because the longer the repayment period, the higher the risk credit default.
“In such a short term, we don’t see companies defaulting on their loans. The same goes for those which opted for six- or 12-month repayment periods,” he added.
Saying that the startup is “expanding very quickly,” Vikas added that in October, Funding Societies grew its lender database to about 500, and disbursed S$1 million (US$710,000) worth of loans.
“We received at least four new lender registrations every day,” he claimed.
Old-school controls
Filling the gap between investors and SMEsAs with any such business, due diligence is important, and in its case, Funding Societies depends on traditional methods.
“We meet these borrowers face-to-face, be it at their offices or factories, to understand their business model better. Only after all these assessments do we approve the loan,” said Vikas (pic).
Also, the startup refers to the grade given by its own credit-scoring model on how much interest it should charge the borrower.
For investors, the minimum amount for them to start investing is only S$100, said Vikas.
“The minimum amount allows investors to try it out and if they’re convinced of the business model of the company that they are investing in, they can increase the amount,” he said.
However, he encouraged investors not to put all their eggs in one basket and to diversify their investment across multiple loans.
An investor is provided with a fact sheet of the SME that they’re about to invest in.
“The fact sheet provides everything that an investor needs to know, including previous loan repayment records,” Vikas said.
Partnership with trustee agency
Funding Societies is also the first P2P lending startup to partner with a MAS-registered escrow agency, in this case Orangefield, to hold its crowdsourced funds.
Vikas said the partnership is to “provide confidence to investors.”
According to cofounder Teo, the trustee agency will be handling the funds based on the intended purpose as set out upfront between lenders and borrowers.
With that, lenders can be assured the money is going to the borrowers they intended to help grow.
“And for borrowers, whenever they make monthly repayments, they can be sure that the money goes back to the lenders and not to the business platform itself to offset certain expenses or pay off previous investors,” Teo was quoted as saying in a report by Channel News Asia.
Meanwhile, Funding Societies is looking to go regional in the next 12 months.
“The most strategic reason for the regional expansion is that we have a lot of contacts in Indonesia, thanks to Wijaya,” said Vikas.
“Also, Indonesia and Malaysia are much bigger markets compared with Singapore,” he said.
Related Stories:
Capital Match looks to play matchmakers for SMEs seeking loans
What’s Next: Disruptors will not kill off banking incumbents
SMEs in Malaysia may be missing out on funding: ACCA
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