“We want to pay it forward”: Funding associations raise $25 million to boost capital for SMEs in Southeast Asia
Small and medium enterprises It represents approximately 50% of Southeast Asia’s GDP. Contributing to job creation, innovation and comprehensive economic expansion. However, as in other parts of the world, SMEs in Southeast Asia face challenges when it comes to adequate working capital. In short, small and medium enterprises are usually considered Very risky For traditional banks to lend, they charge high interest rates, if they agree to them at all.
Kelvin Teo and Reynold Wijaya, two Southeast Asian entrepreneurs who met while earning graduate degrees at Harvard Business School, were keenly aware of this gap in their home country. Inspired by HBS Declared mission “To make a difference in the world,” they set out to address this problem.
“We grew up as underdogs, felt proud to be at HBS and wanted to push that value to Southeast Asia,” Teo said in an interview with TechCrunch. “SMEs resonate with us, and financing is their biggest weakness.”
their beginning, Funding associationsis an SME lending platform based in Singapore with licensed and registered offices in Indonesia, Malaysia, Thailand and Vietnam. On the back of strong growth across the region – having so far lent more than US$4 billion to more than 100,000 companies – the fintech startup has been on a tear in funding as well, recently raising US$25 million in equity .
The investment comes from one investor: Cool Japan Fund (CJF), Japan’s sovereign wealth fund. Notably, this represents the fund’s first investment in a fintech company in Southeast Asia.
The latest financing brings the total amount raised by the syndicates to approximately $250 million in equity. Investors included strategic backers such as: Khazanah Nasional Berhad and Maybankwhich contributed $40 million less than last year, as well as SoftBank Vision Fund 2, CGC Digital, SBVA (formerly SoftBank Ventures Asia), Peak XV Partners (formerly Sequoia Capital India), and Alpha JWC Ventures, from Among others.
Finance Associations in Singapore was established in 2015 on the back of the collective backgrounds of the founders. Teo previously worked at Accenture, McKinsey and KKR Capstone, while Wijaya has experience in a family business in Indonesia. After deciding to create a business working with small and medium-sized businesses, the duo spent about three years researching the most pioneering companies in the United States and analyzing their journey to the top.
The company says it has provided more than US$4 billion in business financing loans to date to about 100,000 SMEs in its five Southeast Asian countries. This is up from $3 billion in April 2023. Additionally, it has achieved an annual payments gross transaction value (GTV) of more than $1.4 billion since expanding its payments business in 2022.
The startup plans to use the funds to expand its core focus, providing faster financing services to SMEs in Singapore, Indonesia, Malaysia, Thailand and Vietnam. It is also investing in artificial intelligence to digitize and automate the lending application process and grow its payments business, which it launches in 2022.
Moreover, by partnering with CJF, it will provide financial services to support Japanese companies that are already running business, looking to expand their presence in Southeast Asia, or entering new markets in Southeast Asia, Teo told TechCrunch.
The startup provides a wide range of financing options, including term loans, microloans, payable financing, revolving loans, and asset-backed business loans, ranging from $500 to $2 million, to meet the diverse needs of businesses at different stages. . Many companies use the funds for working capital or as temporary loans to expand their business.
One of the things that sets the startup apart from competitors like Validus and Bluecell Intelligence is that it offers a one-stop service, from short-term financing to supply chain financing, across online and offline channels, partnerships, and payment offerings, according to the company’s CEO.
Digital financial services revenues are expected to rise in Southeast Asia, with digital lending leading the way and accounting for about 65% of total revenues, according to a new report. E-economy SEA Report 2024.
Since the giant $144 million Series C+ funding round Led by SoftBank Vision Fund 2 in February 2022, the SME lending market in Southeast Asia has significantly consolidated, making the startup stronger as a market leader, Teo said.
Ironically, a company’s crisis may turn into a gain for finance associations. Teo said the company expects more consolidation among credit-focused fintech companies in Southeast Asia. This is because many companies are reaching the end of their runways and unable to raise more funds in the still faltering SEA funding climate. He added that those that focused on individual countries were particularly at risk.
“Since the SoftBank Vision Fund investment in February 2022, the macro market has changed dramatically, with the collapse of US banks, impacting credit supply to non-bank lenders,” Teo told TechCrunch. “Higher interest rates in the US have also raised the cost of money.” As of September, the macro market faced a 23-year period of rising interest rates, and geopolitical factors hurt SMEs and raised non-performing loans, he added.
In this difficult period, in December 2022, the company made its first acquisition: Sequoia-backed payments fintech CardUp. This nearly tripled its revenue while keeping its headcount roughly constant. Teo also noted that the startup has made investments in three companies in this period, including a fintech company and a startup specializing in point-of-sale software.
A socio-economic impact report that the startup collaborated on with the Asian Development Bank (ADB) in 2020 found that SMEs supported by financing associations contributed $3.6 billion to GDP and created nearly 350,000 new jobs. Additionally, the program helped SMBs increase their revenue by 13% through fast disbursement and a simple application process, according to the company.
