Within Southeast Asia, the financial services industry holds a tremendous potential that could be unleashed if fundamental underlying challenges are addressed.

Out of a population of 570 million in Southeast Asia, more than 70 per cent of the adults are “underbanked” or “unbanked” and have limited access to financial services. In addition, millions of micro, small and medium-sized enterprises (MSME) face large funding gaps.

According to Bloomberg more than one in three MSMEs expect their need for financing to increase in the future. The funds will likely be used to invest in new technologies, as solutions used on a daily basis evolve; and business opportunities as they arise.

MSMEs are seeking sources of funding that are available ‘on-demand’, enabling them to respond to opportunities and threats that quickly arise.

Traditional funding options are failing to meet the demand and hence MSMEs are looking for ‘alternative’ funding options that can meet their needs.

According to Bloomberg, based on the findings that businesses are increasingly adopting novel digital tools and platforms, a logical next step for MSME could be to seek out complementary, non-traditional microfinancing solutions when it comes to funding.

The importance of MSME and the funding gap

MSME plays an important role in the Asian economy. Although estimates vary, several sources suggest that MSME account for over 95 per cent of all firms, contributes to 50–70 per cent of employment, and constitutes 30–60 per cent of various countries’ gross domestic product.

The MSME loan to GDP ratio remains low in most ASEAN nations, with figures ranging from three to 34 per cent. The situation is particularly severe in the Philippines and Indonesia, both of which have ratios in single digits.

Also Read: How fintech can help reach the unbanked and underbanked in Southeast Asia

Malaysia and Singapore fare better with 55 per cent and 36 per cent respectively, while Thailand leads the way with 105 per cent of the GDP ratio in SME loans.

According to studies, the vast majority of MSMEs in Southeast Asia currently fund their businesses with their own savings (90 per cent), or rely on family or friends (40 per cent).

Why is there a funding gap?

A lot of MSMEs have little to no resources and some lack even the most basic business skills, such as how to add a markup to products or filling out business loan applications.

Approximately 80 per cent of MSME say they want to borrow but lack access to affordable credit.

The top four reasons why MSME are struggling to get a loan:

• High interest rates
• Troublesome process
• Don’t know where to go
• Application rejected

And so MSME remains a largely underbanked segment in most markets within Southeast Asia.

Why are traditional banks not filling this gap?

• The costs to provide a US$5-10,000 loan are high so banks won’t find it worth the effort
• A general lack of data on the financials of the MSME for the banks to give a proper credit rating
• Banks lack the digital infrastructure to analyse and disperse smaller loans
• There’s a general risk-averse perspective on unsecured loans also because other bank products might be more profitable and less risky

And so technology-enabled business models that offer a more effective way to serve MSME are leading the way and are creating new market opportunities.

Customer gatekeepers

Established players risk (partly) losing the MSME segment to new (technology) players that can use nontraditional data sources to create access and supplement underwriting, and offer a broader suite of products and new delivery models (such as offline-to-online platforms) to address the needs of MSME.

New players that can serve as a customer gatekeeper will have an advantage in the battle for MSME. Innovators that offer a vertically integrated solution to meet different MSME merchants’ needs will gain marketshare.

Offline-to-Online

Fully digitalising the process immediately is not realistic and in the next five years we will need hybrid solutions where data is processed automatically while keeping in-person interactions to create trust and provide guidance.

Underbanked MSME in Southeast Asia generally still rely on the physical presence of a bank to handle their finances. Some innovators are closely working together with banks to utilise their existing physical retail presence.

Others have integrated with point-of-sale systems or accountancy software and leverage existing trusted business relationships.

However, one can expect that the offline element will almost completely disappear in due time as has already happened in more advanced markets like Singapore, several countries in Europe and the US.

Which countries and who is disrupting?

Southeast Asia is a huge market, but it is an extremely fragmented region. There are 11 countries, each differs significantly in terms of regulation, economy, infrastructure, and culture.

This space has been heating up and a range of players have launched over the past few years and are trying to get a piece of the pie. Some working closely together with banks, others launched P2P lending platforms and some players have even obtained a license to lend directly from their balance sheet.

Some examples:
Funding Societies (Singapore + Indonesia): Kelvin Teo, co-founder

“Even if we focus on bigger markets such as Indonesia or its capital Jakarta, there are nuances working with people who come from the 17,000 different islands in Indonesia. Each time we enter a new country, we need to rebuild the business from scratch. And for most parts of Southeast Asia, regulations are still unclear, credit and fraud risks are high, and the legal framework does not provide meaningful recourse for lenders. Hence we paid quite a bit of ‘school fees’ in terms of time and resources to build and scale.”

Grab Finance

When you start a small business, you’ve got big dreams. And GrabFinance is here to help. We’re committed to empowering SMEs across Southeast Asia with funding, tools, and insights so they can reach their goals, no matter what they are.

Offline-to-Online problem remains

Few innovators seem to have tackled the offline-to-online problem in a scalable manner through and so the real customer (MSME) gatekeepers still have to emerge.

This is likely due to the fact that these players have mainly focussed on their internal operations and credit algorithms to keep default rates low, rather than purely focussing on building new channels to grow loan origination.

Also Read: Banking the unbanked: Have cryptocurrency project achieved the most claimed utility of the blockchain?

Next to this, there’s a large group of ‘advanced’ MSME, such as e-commerce businesses (vs. brick-and-mortar), that can be accessed without having to solve the fundamental offline-to-online problem.

Lending is the biggest opportunity

By 2025, digital financial services are expected to generate revenues of about US$38 billion and account for 11 per cent of the total financial services industry.

Digital lending is expected to grow 33 per cent annually to reach US$18 billion by 2025, replacing digital payments as the largest contributor to the digital financial services revenue pool.

Google and Temasek have predicted that SEA’s loan book will increase two-to threefold reaching $110 billion by 2025.

Regulations needed to reach full potential

Attaining the full revenue potential requires several factors to fall into place, including continued investment and incentives to stimulate innovation and user adoption. But the biggest uptick will come from supportive regulations and government policies.

ADBI in 2019: While several legal and regulatory challenges remain and the resilience of these new funding models have not yet been tested in a downturn, new technologies have already started to transform SME financing.

We can conclude that digital lending services are a large opportunity in Southeast Asia. Multiple players have entered the market over the past few years and are trying to ‘crack’ the problem.

It seems that the complete recipe for success is still to be invented but a winner in the market likely looks like this:

A strong (offline-to-online) customer gatekeeper with a scalable business model that is supported by the government and has a vertical integration with third-parties to collect data and disperse loans.

Such a winner might come from an unexpected corner such as a point-of-sale company or a provider of accountancy software that has an established relationship with MSME.

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eFishery, an online platform for fish and shrimp farmers in Indonesia, has announced the closing of its Series B financing round, co-led by Go-Ventures (a VC fund with gojek being its cornerstone investor) and Singapore-based PE firm Northstar Group.

Existing investors, including Wavemaker Partners and Aqua-Spark (a sustainable aquaculture investment fund), also joined the round.

The size of the investment has not been disclosed.

The money will be used to strengthen its product development and grow the team. “This new funding will allow us to grow the company, roll out across Indonesia, and achieve our vision of being a leading aquaculture intelligence company,” said Gibran Huzaifah, Co-founder and CEO of eFishery.

Launched in 2013, Bandung-based eFishery offers an end-to-end platform providing fish and shrimp farmers with access to feed, financing, and markets.

Also Read: eFishery, Shiok Meats co-founders on MIT Technology Review’s list of emerging innovators from APAC

It has four main products:

eFisheryFeeder, a device that enables automated feeding for fish and shrimp, which can be monitored and scheduled via a smartphone;

eFisheryFeed, which provides farmers with quality fish feed at affordable prices;

eFisheryFund, which helps farmers gain access to funds to grow their business;

eFisheryFresh, an online platform to connect Indonesian fish farmers with their customers (both end consumers and merchants).

The startup recently set up eFisheryPoint, a one-stop physical hub located near the farmers to allow them to access the firm’s products easily.

At these hubs, farmers can purchase eFishery products, sell their fish, or participate in other engagement activities, such as arranging product training, product demos or repairs.

Currently, there are 30 hubs in Indonesia, and it plans to open 100 new ones across Indonesia by end-2020.

“eFishery’s products support tens of thousands of fish and shrimp farms in over 180 cities, based in 24 provinces across Indonesia. There are some 3.3 million fish farms across Indonesia. Our most effective sales channel is marketing our products directly to the farmers by arranging field visits. With the launch of eFisheryPoint, which allows us to engage with farmers easier, as well as our efforts to penetrate the domestic market further, we are aiming for a 10-fold increase in our business,” added Huzaifah.

eFishery raised a pre-Series A round in 2015 and a US$4-million Series A round in the late 2018.

The firm also has plans to double its team of 250 employees by the end of 2020.

Also Read: Indonesia’s agritech industry is at an inflection point

The business has been profitable for the past two years.

“Although we started some pilot trials in Bangladesh, Thailand, and Vietnam, our main focus for the remainder of 2020 will be to secure our position in Indonesia through scaling up our products and creating more strategic collaborations. Once we have built a strong and replicable model throughout Indonesia, we will then be ready to explore expanding regionally,” Huzaifah concluded.

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Image Credit: eFishery

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Aruna, an online marketplace-cum-auction-platform for fishery products in Indonesia, announced today it has closed a fresh investment round to the tune of US$5.5 million from existing investors East Ventures, AC Ventures, and SMDV.

The funds will aid Aruna to scale its fisherman community ecosystem by expanding to more coastal areas and scale its operations into new domestic and export B2B markets.

Also Read: Go-Ventures, Northstar Group co-lead eFishery’s Series B round

Aruna’s deal coincides with the announcement of a Series B round of investment by eFishery, an online platform for fish and shrimp farmers in the country.

Aruna was started in 2016 by Farid Naufal Aslam, Indraka Fadhillah, and Utari Octavianty. The three graduates of Telkom University Bandung started Aruna to leverage technology to create a sustainable and fair-trade ecosystem for fish and marine products.

The startup helps local fishermen export their products to countries in Southeast Asia, East Asia, North America and the Middle East. Aruna has worked with thousands of fishermen in 31 coastal areas across Indonesia, covering multiple regions between Sumatra and Papua.

Aruna also provides fishermen more direct access to the B2B domestic market.

“Aruna’s mission is to make the sea a better livelihood for all. E-commerce helps create more fairness and transparency in the fishing industry, as well as making a more efficient supply chain. By reaching more coastal areas across Indonesia, Aruna joined the effort in building economic equality in Indonesia,” CEO Aslam.

Aruna claims it recorded an 86x growth in revenue in H1, 2020 compared to H1, 2019 as global demand for fresh sea products remains strong despite the coronavirus pandemic.

“Aruna remains optimistic to reach further growth in the middle of the pandemic. As a source of protein and a multitude of nutrients that are essential for the immune system, fishery commodities are products that consistently have growth in demand even amidst the pandemic,” Aslam added.

To cater to the spiking demand for home delivery of fresh produce and staples, the agritech company launched ‘Seafood by Aruna’, a home delivery service for fishery products. It provides fresh fish and seafood products, ready-to-eat products, and ready-to-cook products for consumers in the Greater Jakarta area, Bandung, and Balikpapan.

Seafood by Aruna is available at Tokopedia, Shopee, Bukalapak, and Grab Mart. Aruna also collaborates with Sayurbox, Nalayan, and Delisari and are open to opportunities for new resellers.

Also Read: Indonesia’s agritech industry is at an inflection point

In April 2017, Aruna had secured an undisclosed seed funding from hardware and machinery distributor UMG Indonesia.

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Image Credit: Aruna

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ACE raises US$400K in funding from Manila Angel Investors Network

The story: Singapore-based personalised celebrity video platform ACE has raised US$400K in pre-seed funding to propel global growth of the largest celebrity shout-out platform in Southeast Asia.

Investors: Manila Angel Investors Network (MAIN), celebrity investor Max Loong, angel investors hailing from Grab, Carousell, Ayden Payments, and Google.

The plans: ACE will be using the funds to scale ACE’s talent and consumer base both regionally and globally, with domination of the Southeast Asian market in sight.

What does ACE do? Founded in November 2019 by Dene Schonknecht, ACE is a collaborative platform designed for fans to connect directly with their heroes or favourite celebrities for exclusive content. ACE aims to unite a traditionally distant celebrity-fan dynamic and revolutionise the entertainment industry with accessible, authentic celebrity connections.

Singaporean fintech startup BondEvalue launches bond exchange platform BondbloX

The story: Singapore-based fintech startup BondEvalue has launched blockchain-based bond exchange BondbloX (BBX).

BBX makes fractional ownership of bonds possible by allowing them to be traded in smaller denominations of US$1,000, which the company believes to be paving the way for many more investors to buy and sell bonds, making bond trading much faster, transparent, and at a lower cost.

Also Read: In brief: EDBI invests in Vesta; edutech startup ACKTEC raises funding

The process: Settlement on BBX is on a T+0 basis, that is within seconds instead of the normal two-day settlement cycle, thereby reducing counterparty settlement risks for investors. Investors around the world can trade on BBX via web and mobile devices by opening an account with their banks, wealth managers, family offices or robo-advisors, subject to individual country restrictions on bond trading.

In Singapore, BBX is open to accredited and institutional investors. The ability to trade bonds in smaller denominations means that investors can build a diversified portfolio without a hefty outlay.

BBX will charge a flat fee of US$2 per trade, irrespective of size and a platform fee of 20 basis points annually, while its partners can opt to charge a commission for each transaction.

BondEvalue operates from offices in Singapore and India, and recently expanded to Mexico with the appointment of Jaime Zenizo as the CEO of BondEvalue Mexico.

Shippit expands to Singapore, partners with SingPost

The story: Today, Australian logistics technology company Shippit announced a partnership with e-commerce courier service Singapore Post (SingPost) as a part of its expansion to Singapore.

Shippit officially launched in Singapore on 14 July to serve as the startup’s regional headquarters. It plans to expand into Malaysia, the Philippines, and Indonesia in the near future.

The deal: The company plans to scale by providing users with instant access to more delivery options — including packages to be delivered directly to Pick Own Parcel Station (POPStations) and letterboxes — a service typically reserved for larger companies.

As part of the deal, Shippit will also offer SingPost’s Speedpost Express Service to SMEs, alongside discounted, pre-negotiated rates for next day and economy delivery services.
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Indonesian startup Titipku is based in Jogjakarta, a city known for being a hotbed of tech talents and a budding startup ecosystem — something that co-founders Ong Tek Tjan and Henri Suhardja do not take for granted.

Suhardja and Ong speak to e27 for an exclusive interview to explain the idea behind Titipku, a location-based marketplace aimed to facilitate MSMEs and sellers in traditional markets to go digital.

From early on, Suhardja immediately pointed out the uniqueness of the dynamic duo. “Our age gap is more than 20 years,” he says, which prompts the question on how they got together in the first place to run the business that was established in 2017.

“I first knew Ong when I came to Jakarta and joined an entrepreneur WhatsApp group. I first approached him for a light discussion. Then he shared his business idea and I was intrigued by the idea of helping traditional sellers go online, so the rest is history,” Suhardja recalls.

Ong had 26 years of banking experience. In October last year, he resigned from his director position at PT Bank Sahabat Sampoerna to go all-in with Titipku with Suhardja, who is also an investor in three F&B MSMEs.

Ong adds that the fact that they both shared an alma mater in Gadjah Mada University make it seem like a match in heaven. They were joined by other four co-founders: CFO Ian Stephens, CTO Fransiscus Pandhu, COO Stephanus Deo, and CMO Faradhita Delicia.

Also Read: Why digital lending services for MSMEs are the next big thing in SEA?

Why Jogjakarta

Ong and Suhardja agreed to set up Titipku in Jogjakarta because MSMEs and traditional markets have been defining the lifeline of the city for centuries.

“More than other big cities, we see that traditional markets and sellers are the souls of Jogjakarta, and they are precisely why we started Titipku: so they can keep up with the digitisation around them and gain something from it,” Suhardja says.

“Besides, the cost of running a startup business from Yogyakarta is far more affordable than say, Jakarta, where startups are flocking and crowding the scene. Here, it’s much quieter and we can focus on tackling Yogyakarta first,” Ong adds.

Helping MSMEs going digital is not something novel in tech startups, especially in the time of COVID-19, where physical contacts are discouraged. But digitalisation is particularly challenging for older sellers who were previously almost untouched by technology.

With an idea to solve a problem, come the challenges of implementing it on the field: How to convince these traditional sellers to go online.

Enter the Explorer.

Explorer is the name given by Titipku to the younger generation or anyone interested to help and get extra income by onboarding these elderly sellers into the app. Explorers are the ones who visit traditional markets to properly onboard sellers by taking pictures and creating their profiles on Titipku.

“We believe that this is something that would benefit both Explorers and the MSMEs, to connect them in such a way that happens under one ecosystem,” Suhardja explains.

Also Read: Lesson from the failure of several startups in the sharing economy

Besides Explorers, Titipku also has Nitiper and Jatiper, other terms they use in addressing the customers and the couriers, respectively. Together with Explorers, Titipku aims to create an ecosystem that is centred around helping the MSMEs thrive digitally.

“I’m gonna make you an offer you can’t refuse”

Made famous by The Godfather (1972) movie, the quote captures the essence of what Titipku is trying to do.

With gojek and Grab dominating the on-demand services scene, the question remains the same: How can the rest of the newcomer providers compete to get the attention of the market? Might as well pivot or start with something entirely different that has not been taken by the archnemesis.

Titipku confidently comes in with the offer of share vouchers for three parties that are involved in helping MSMEs going into the surface: Explorer, Nitiper, and Jatiper.

“Each of them gets a share voucher that’s worth US$0.017, that is multiplied every time they board new MSMEs into Titipku’s app and a transaction happens,” explains Suhardja.

The decision to let their shares be owned collectively by all of the members of the ecosystem is an approach that not every startup is willing to take.

On this, the co-founders share their takes. “I was intrigued by whether or not being an on-demand courier … is a sustainable profession in the long term. I mean, what do these people gain in the long run if they keep being a courier? There is no guarantee of financial security for these people,” Ong explains.

“The usual rewards such as points can be redeemed anytime, but this won’t sustain them. So we figured, why not our company’s shares?” Suhardja adds.

With this being their main offer, the hope is that members of the ecosystem will be encouraged to onboard more MSMEs and bring them into visibility.

Also Read: BukuKas makes book-keeping easy for Indonesian MSMEs to save money and time

“This also serves as a tool for us to work even harder, so our company can one day go public. Then these people who’ve been with us since the beginning can get the financial security or at least the rewards from all the voucher shares they have worked for,” says Suhardja.

What’s still missing

MSMEs account for 60.34 per cent of Indonesian Gross Domestic Product, which according to data provided by Titipku, is worth US$150 million. It is also the backbone that can help bring people out of poverty and can create 120 million jobs.

Titipku also believes that supporting MSMEs can bring forth economic equality tools for the people, even in the remote area.

However, even with Indonesia being the fifth country with most internet users (143 million users in total), local products produced by the MSMEs only contribute a total of seven per cent of online transactions.

“This is what we wish to change,” Ong says. By empowering MSMEs in going digital, Titipku believes it has solved the MSMEs’ number one problems of access to a loan with its approach.

“Most of these MSMEs are unable to get loans because of its high-interest rates, so we seek to solve this by bringing them online through our Explorers, who act as their salesperson,” explains Suhardja.

With the shares vouchers, on the other hand, the company wishes to change the “quickest way to get money” mindset most startups and people joining on-demand professions are used to.

“We want this to also be a tool to educate people on financial planning, that if we work together towards a common goal, we might be able to succeed together. Nothing in this world is free, and the free offer is not something that will last,” Ong closes.

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Image Credit: Titipku

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