Speaking to DEALSTREETASIA, Investree co-founder and chairman Adrian Gunadi said that the investment would not only boost the company’s core business but also its new sharia product and upcoming online government securities business. T

he firm is hoping to capitalize on its large lender base, made up predominantly of the country’s millennials aged 21-35. The company, which facilitates loans from lenders to mostly SME borrowers, has facilitated Rp 623 billion ($ 45.48 million) in loans since May 2016, funding 1,448 medium-sized companies. 

It claims a market share of around 30 per cent in an industry of around 32 players. In an exclusive interview with this portal, Gunadi talks about Investree’s investment and expansion plans, as well as its views on the P2P competition and regulation. Edited excerpts: You launched a sharia product last month. Can you explain more about the product? Indonesia’s Muslim market is the biggest but the Islamic still is very limited. There’s actually a number of reasons for this which I know from my experience in a sharia bank. 

The first thing is in terms of product, pricing and access. So product is in terms of product understanding, then pricing is in terms of prices which is relatively more costly than conventional. The last one is in terms of accessibility; the reach is still very limited because the number of branches is still limited as compared to the number of branch offices of non-sharia banks. So the idea came from there. Last year we started planning to offer a sharia alternative so that the people of Indonesia have a choice, whether they want a conventional product or a sharia one. 

Secondly, most of the founders here are from sharia banks so we see this as something that we have to have. How is the demand? I think from the beginning we saw that the demand is definitely there. A number of our borrowers, for example, only want sharia loans. In fact, our first customer, which is an SME in Surabaya, only wanted sharia products. So we started from there. In terms of lenders, we started piloting in November 2017. 

We then received directions from DSN in August and had a technical advisor appointed. Then we started the product and tech development. From November to now, around Rp 4 -5 billion in loans have been given to borrowers using this sharia scheme. The lenders have started funding it and the number of sharia lenders is around 3,000 as of today and counting. I’m sure in the near future there will be more borrowers. Is it true that you are raising Series B funding? 

When will the closing be? Who are the investors?  (We will be) Closing two or three months from now. The round will be led by one investor and existing investors Kejora and Persada will also participate. Then there will be two new co-investors. They will have no seat on the board. So the ones on the board will be the lead and existing investors. The new investors are all foreign. We are in the legal structuring stage. There needs to be approval from OJK too. What will the funding be used for? Capex, for sure. Also marketing, opex and our expansion. We’ve got a number of cities we want to open in like Surabaya and Medan. There are a number of marketing initiatives we want to pursue. We have not done any marketing so far. It has all been organic. And also tech – we want to further enhance our technology so there can be more products that we can offer. How has the growth of Investree been in terms of size and revenue? In terms of size, we have facilitated Rp 623 billion in loans since we started in May 2016. If we look at December 2016, the figure is at Rp 53 billion, so from December 2016 to now, it’s grown 10 times. The total number of companies that we’ve funded is around 1,448 medium-sized companies. And then from the Rp 623 billion, around Rp 500 billion has been disbursed and Rp 367 billion has been paid back. So there’s around Rp 120 billion in outstanding loans. What about market share and revenue? Our market share is around 30 per cent. There are around 32 P2P firms registered in the country. Our revenue is 3-5 per cent, so on average, it’s about 4 per cent. We only take a fee from the borrower side, so the revenue growth is not bad. Do you think fintech and banks can co-exist? This year we are hoping to collaborate with banks and other financial services firms. Why? Because banks see that if fintech can process loans faster and more efficiently, why not work together with them? Also, banks see this as a way to develop their MSMEs sector. Banks have a target from OJK that 20 per cent of their portfolio must be MSMEs. If they have to build resources and infrastructure to target the segment, it will be costly, so fintech can be a solution. That’s where we are hoping there will be a collaboration, so bank as an institutional lender to fintech companies and fintech as an acquisition channel for banks. So far the response from banks has been positive. But banks have a lot of rules that they need to comply with. To launch a product, it takes time. Secondly, the bank’s IT infrastructure and technology need to be more agile. But in terms of strategy and openness of the banks, I think they have shown that they want to collaborate. It’s the implementation that is key. How many banks have you been in communication with? More than 10 so far, including big and medium sized banks, including state banks. How do you see the P2P competition at the moment? How far away is the market from becoming saturated? Nowhere near. The credit market that has not been facilitated by the banking sector and multi-finance institutions or formal financial institutions is still around $60 billion. So the saturation point for lending in Indonesia is still far away in my opinion. For P2P competition, it depends on the segment one wants to play in, whether it is micro, consumer, SMEs, or corporate. It’s down to the strategy of each P2P firms. Those that we regard as competitors or those that are close are Modalku and funding societies. Others have a different business model such as Amartha that plays in microfinance, Taralite that lends to individual e-commerce players and Uangteman that focuses on the consumer. There’s an increasing number of players in P2P. Are there any plans for consolidation? No, it is still too small, too early. The industry is only two years old. There are still some that are still pivoting, the business model is not fixed and not firm, so I think it is just still growing. We see that P2P is maybe not yet going in that direction but in terms of collaboration, joint venture, with other players and other verticals, it is a possibility. How is the Vietnam expansion going? Is there an expansion to other countries in the pipeline? Other countries are in process. We have closed a number of deals from Vietnam. Over there, we are only a platform provider. We have a local party there, a subsidiary from Nahm a Bank in Vietnam. They’re the ones that drive the market there, we just provide the platform. The market there is a bit different to that in Indonesia. It is different in terms of regulation, also in terms of the banking business in each region. The risk profile, the scoring, analysis, the SME profile and the collection effort are also different. I can’t disclose about the other country, we’re still in talks. There’s one country. We’re looking to have it finalized this semester. It’s a Southeast Asian country because we have to look for a market whose demography is more or less the same as Indonesia. Do you have any plans to venture out to other sub-segments? Yes, we’re studying other sub-segments that are fairly interesting. Wealth management, for example, is an area that is really under-penetrated. We are now learning about our lender behaviour because we now have around 16,000 registered lenders on our platform. So, that can be a vertical that we may look at. But it won’t be done this year as it will need time and also license. And also we would need to think about the strategy – whether it will be done through a joint venture, or do we go alone. Those are strategies we are looking at. But the moment our focus is still to expand our lender base, both institutional and retail ones. And also expand the borrower base because in my opinion, the market potential is still really big. In 2018, apart from the sharia product and marketing initiatives, what else can we expect from Investree? The retail online government securities. It will start either in April or May. We’re waiting for confirmation from the Finance Ministry. It will be a new product, so we would be offering government securities. It’s a new asset class that will be offered on our platform and it’s definitely a different asset class to what we have offered before. This shows that new products and asset class can be distributed through Investree. Because we already have a lender base, a channel and platform, it is possible that there may be other government programmes that are distributed through us. What regulations would help P2P? What OJK and BI have done by establishing fintech as one of the pillars of financial services in Indonesia is important. People now are more aware of fintech and it can accelerate financial inclusion. In terms of regulation, it is important to balance regulation and innovation. OJK recently discussed how the way it supervises fintech will be different from the way it oversees banks and other financial institutions. It will be more “flexible” but of course, there will be limits. This is because innovation in our products is very fast in nature. If we are treated and regulated like banks then maybe there will not be optimum innovation. It should not be over-supervised. And then in terms of incentive, all startups hope that there are incentives because this industry can help accelerate financial inclusion in Indonesia. These incentives can be in any form. Looking at other countries, there are tax and pricing incentives, depending on the government.  What is Investree’s strategy in terms of talent and recruitment? The fund allocation for talent and people, in general, is high because ultimately, this fintech business cannot only rely on technology. There need to be talent and people, particularly in the fields of risk management, sales, marketing and tech. And so the portion for people and talent is still around 50 per cent. And in the future, the challenge will be to find tech talent that can quickly understand finance, because they need to understand things like product, risks and so on. And that is pretty challenging in my opinion. To do this, we have started working with some tech academies, where some of our developers will be groomed.