Incorporated in 2015, Funding Societies | Modalku has become the largest digital financing platform for small and medium enterprises (SMEs) in Southeast Asia within just 5 years of its operation. Their mission is to help build stronger SMEs and societies by enabling fast and effortless financial access. To date, it has helped disburse over US$ 1.3 billion in funding from institutional investors and 250K+ registered retail investors through 3 million business loans. The concept on which their services are based is known as Peer to Peer (P2P) lending or Debt crowdfunding. At present, Funding societies is licensed to offer its services in Singapore, Indonesia, and Malaysia, and are backed by Sequoia India and SoftBank Ventures Asia Corp amongst many others. The Senior Commercial Director at Funding Societies, Vikas Jain shares, “We have more SME and investment products than any of our peers. On top of this, we offer the lowest minimum investment amount at S$20, so as to lower the barrier of access for anyone interested in investing. We also have many firsts to our name when it comes to P2P lending platforms:
The first platform to engage an escrow account in Singapore,
The first platform to come up with mobile apps for SME loans and Investments,
The first platform to receive tax exemption for its individual investors in Singapore
The first platform to win the MAS Fintech Award (MAS = Monetary Authority of Singapore).”
Often, SMEs fail to meet the borrowing criteria of traditional financial institutions because of their inability to maintain a low to zero credit track record and lack of assets to pledge as collateral. 51% of Southeast Asia’s SMEs are still underserved and have been denied affordable credit due to the same despite their economic growth potential. As almost 58% of the ASEAN’s GDP comes from SMEs, it is unfair that they do not have access to funding which is crucial to fulfilling their business requirement. Funding Societies’ financing solutions effectively bridge this lending gap in as quickly as 24 hours and offer customizable credit solutions to fit the SME’s repayment needs.
Adding further on this, Vikas shares, “To cater to a spectrum of investment risk appetites, we continuously tap upon market data and investment trends to innovate investment products. On top of our initial Business Term and Invoice Financing investment products, we launched the Property-backed Secured Investment (PSI) product in 2018, and the Guaranteed Returns Investment (GRI) and Guaranteed Property-backed Investment (GPI) products in 2019 and 2020 respectively. These provide investors with more security as the PSI product takes property as collateral while the Guaranteed Investment products are backed by our direct lending entity, FS Capital, from which investment returns will be paid even if the borrower fails to make their repayment.”
Funding Societies is looking forward to completely digitizing all their products which are physical or semi-digital.
Innovative solutions to derive credit
Looking back at the days when business owners had to wait in long queues to submit their financial statements to get loans, Funding Societies has completely revolutionized this industry in Southeast Asia in the past few years. Their mobile microloan application, FS Bolt, has become a popular funding tool among SMEs since its launch in Singapore and Malaysia in 2017. Business owners can also easily apply for funds by directly going to their website with simple documentation like their National Registration Identity Card or use their FS Bolt mobile app to apply for microloans on-the-go. The decision on each application is processed digitally through Funding Societies their proprietary credit underwriting model in as fast as 2 hours, and disbursal on the same day.
What simply started as their side project has now grown to serve over 1000 SMEs in the region, becoming one of Funding Societies’ core offerings alongside other crowdfunded products catered by them. Adding further Vikas shares, “Small businesses also benefit from FS Bolt’s high interoperability with accounting software, Xero, allowing them to get paid faster and maintain a healthy cash flow in their business. FS Bolt has seen a phenomenal adoption rate in Singapore and Malaysia since 2017. From the period of January 2018 to January 2020, 917 loans have been disbursed, bringing the total amount to ~S$23 million in Singapore alone. During the same time period in Malaysia, 647 loans have been disbursed, totaling ~S$17 million in a short span of two years.”
Also, the interests earned on retail investments in Singapore from 2020 onwards are eligible for tax exemptions which means investors can now easily take advantage of their digital platform by completing a standard KYC process and begin investing with as little as $20, making it easy for any individual to build up their investment portfolio. The mobile dashboard on their application further allows the investors and the applicants to track their investment activities, returns, and application status respectively.
Speaking of the target clients, Vikas asserts, “We are industry agnostic and serve all deserving SMEs from across all verticals. Some of the businesses we lend to include a global medical supplies company that procures masks and hand sanitizers, as well as a human resource company that supplies manpower to supermarkets across Singapore. In order to finance more merchants in various industry sectors across the region, we are also partners with Tokopedia, Indonesia’s e-commerce giant, as well as Carsome, Malaysia’s largest second-hand car dealer.”
“We are industry agnostic and serve all deserving SMEs from across all verticals. Some of the businesses we lend to include a global medical supplies company that procures masks and hand sanitizers, as well as a human resource company that supplies manpower to supermarkets across Singapore.”
Working with regulatory bodies to enable easy credit
The rising popularity of digital lenders has facilitated healthy competition in Singapore’s financial landscape. Last year, Senior Minister Thaman Shanmugaratnam highlighted in his speech at the Association of Banks in Singapore dinner that embracing digital finance would be a major step towards liberalizing the countty’s financial landscape. Enterprise Singapore, a Government statutory board formed to support the development of Singapore’s small businesses, has recently included FinTechs in their Enterprise Financing Scheme, sharing some of the latter’s loan risks. As a result, small businesses will be able to easily access more customizable financing solutions suiting to their needs and business requirements. A similar initiative from government institutions can also be seen in Malaysia where, under the Malaysia Co-Investment Fund Scheme (MYCIF), every RM1 that P2P lenders raise on their platforms, the government matches it with RM2.
According to Vikas, following these initiatives, FinTech companies need to consider both external and internal risks related to growth in the industry while planning for the future as this would escalate the competition, which will eventually lead to innovation followed by consolidation. He shares, “In Singapore, we already see some of the early P2P lenders being bought over or closed down due to excess competition. Speed of adoption for Fintech products and increasing transactions and customer base amplifies the need for added emphasis on regulatory, operational, and security risks in the eyes of the government and policymakers. This creates an additional burden on companies to allocate resources to these non-revenue generating activities and comply. Funding Societies realized this need early on and has been working closely with various regulators to not only support in forming regulations but also being an early adopter to good governance practice seen in the more mature markets.”
Giving SMEs a fighting chance against COVID-19
As the pandemic has tightened its grip around the world, digitization has become inevitable, accelerating the need for partnerships between traditional financial institutions (FIs) and FinTechs. Realizing the speed, flexibility, and convenience offered by FinTechs, FIs are beginning to join hands with them by offering their long-standing reputation and wide network of clients in return.
To cut down the risk on their portfolio at the beginning of this pandemic, Funding Societies had to shrink their credit assessments to only allow access to industries that are capable of thriving during the pandemic such as healthcare, transportation, medical supplies, etc. They also had to reduce the tenure of their loans while shifting the focus to asset-backed products in order to mitigate situational risks. Apart from this, Vikas shares, “Our team engaged our SME clients early to understand their situation and address any early warning indicators proactively. As of September this year, we have also been included as a Participating Financial Institution in Enterprise Singapore’s Enterprise Financing Scheme. As mentioned earlier, the structure of this program allows us to extend our financing solutions to more SMEs looking for customized financing options and repayment structures. On top of innovating on investment and financing products, Funding Societies is also investing heavily into technology to continuously ensure that our credit underwriting is increasingly tech-driven. With technology at the core of our business, it is crucial that the human aspect of manually looking through credit statements is reduced and the entire process augmented digitally.”
In upcoming years, Funding Societies is looking forward to completely digitizing all their products which are physical or semi-digital. To achieve that, they are investing heavily in their technical team which has now extended its reach across the borders of Singapore and is all set to tap the Indian market for the best of tech and data talent available.