Asia Blockchain Review recently spoke to Kelvin Teo, Co-Founder of Funding Societies | Modalku, the largest SME digital financing platform in Southeast Asia, licensed and operating in Singapore, Indonesia, and Malaysia. Teo talked about giving loans to small and medium-sized enterprises for growth, the crowdfunding process among individuals and institutional investors, winning a grant from the United Nations, and his visions for the future of crowdfunding.
Asia Blockchain Review: What does your company do and what was your inspiration for FSMK? Can you walk us through the crowdfunding process with FSMK?
Kelvin Teo: Funding Societies is the largest SME digital financing platform in Southeast Asia, licensed and operating in Singapore, Indonesia, and Malaysia. We give loans to SMEs for growth, crowdfunded by individual and institutional investors for returns.
My co-founder Reynold Wijaya and I had experienced first- and second-hand the financing challenges of SMEs. Therefore, when we realized the potential of P2P (peer-to-peer) lending while studying at Harvard, we took it upon ourselves to bring it back to Southeast Asia for SMEs, who are often underdogs like us.
SMEs can apply for a loan through our website, email, or phone. Our friendly team will then follow-up. After we assess and approve the loan, if the SME accepts our offer, we will put the loan up for crowdfunding with a factsheet about the business, but on an anonymous basis. Typically, it takes minutes or hours after crowdfunding concludes before disbursement. It’s as simple as that.
For individuals and institutions, they can register, deposit funds in our escrow account, and start investing in a fully digital process. We manage the end-to-end process, including defaulted loan recovery, creating a seamless investment experience.
ABR: What is the potential for SMEs in Southeast Asia? How can they benefit by working with FSMK?
KT: SMEs account for two out of three jobs and nearly half of the gross domestic product (GDP) of Southeast Asia. Yet they are consistently under-served by banks due to structural constraints. Banks are structurally suited to offer large, multi-year secured loans, while we specialize in small, multi-month unsecured loans. We are often faster, more convenient, and more flexible than banks too. By complementing banks and serving the short-term financing needs of SMEs, we hope to help SMEs grow and ultimately uplift Southeast Asia. Hence, we call ourselves ‘Funding Societies’.
ABR: What is the reason for FSMK’s exponential growth? Can you tell us specifically about the areas of your business that are seeing the highest growth?
KT: It’s never our intention to seek exponential growth, as exponential growth means exponential risk. We simply focus on learning and experimenting to better serve our SMEs and crowdfunding investors, given that SME digital financing is a nascent, localized, and fragmented market. Thanks to the efforts of our teams, several of our products and channels have hit tipping points over the last six months, resulting in the high growth you observed, especially in the market of Indonesia.
ABR: What goals and important milestones have you achieved?
KT: Since our launch in June 2015, we have won numerous awards, including the Monetary Authority of Singapore (MAS) FinTech Award in 2016, the United Nation ITU Telecom World’s Global SME Excellence Award in 2017, and FinTech Top 100 globally by KPMG in 2018. However, our proudest achievement is to give out more than US$500 million over 750,000 loans to thousands of SMEs in Singapore, Indonesia, and Malaysia, while maintaining a default rate of approximately 1% for crowdfunding investors. We exist to help SMEs grow and create investors’ wealth. Our focus on culture and mission has won us backing from Softbank Ventures Asia Corp., and Sequoia India, which led our Series A and B fundraising rounds in 2016 and 2018, respectively.
ABR: Can you tell us about winning funding for your project from the Micro Enterprise Fintech Innovation Challenge? What made your project stand out from others?
KT: The Micro Enterprise Innovation Challenge is an initiative established by the United Nations Capital Development Fund to challenge companies to come up with innovative ideas on how to get micro enterprises digitally included. The industry experts assessed the 33 applications to select the top six pitches based on a mix of criteria, including original innovation idea, impact, and scale, relevance to challenge, and pitch quality. We were selected because of our unique approach to reach, assess, and offer short-term financing to ‘thin file’ and ‘no file’ micro-enterprises in Indonesia.
ABR: What are your plans for the future?
KT: Within our existing markets of Singapore, Indonesia, and Malaysia, we are looking to extend our market leadership in SME digital financing by deepening our product and reach. We are committed to Southeast Asia but are taking a cautious approach to new markets, to avoid overextending ourselves. As Funding Societies scale up, we are not only strengthening our core capabilities in technology and risk management, but also building out full governance and control to mature into an established financial technology firm for the long term.
ABR: In your opinion, why is crowdfunding becoming more widespread? Conversely, what are some of the biggest obstacles to crowdfunding?
KT: Crowdfunding has gained meaningful traction in the last few years in Southeast Asia, thanks to its speed and flexibility for SMEs to secure their much-needed funding. It plays a critical role in financial inclusion, complementing bank offerings.
However, it is far from widespread because it is still at the start of the technology diffusion curve, supported only by early adopters. Many SMEs are still not aware of this financing option, and investors are hesitant until there is more social proof. For crowdfunding to move into the mainstream, we will need time and market education for both the SMEs and the general public.
ABR: How is crowdfunding opening up more opportunities for SMEs?
KT: We exist to enable SME growth through financing. Crowdfunding is becoming a viable source of short-term unsecured financing for SMEs, complementing banks.
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