T

he growing need for funding among small and medium-sized enterprises (SMEs) in Indonesia has pushed a group of young entrepreneurs to build a peer-to-peer online lending platform named Modalku.

'€œMany SME owners don'€™t have any business records and some don'€™t have any bank accounts so it'€™s hard for them to access loans from banks. That'€™s where we come in to offer the solution of fair interest loans with easy requirements,'€ said Modalku co-founder Reynold Wijaya during the startup'€™s launch in Jakarta on Wednesday.

The business, co-founded by Reynold and Kelvin Teo, both in their 20s, links lenders and borrowers through their website. Lenders from all over the world can choose borrowers, whose complete profile is displayed on the lenders'€™ online account.

Modalku requires lenders to inject a minimum Rp 10 million (US$722.5) deposit into the platform so that they can start channeling a minimum Rp 1 million loan to each debtor. Interest paid to them by the platform ranges between 12 and 18 percent per annum.

Each debtor, meanwhile, can get up to a total of Rp 500 million in loans with 15 to 20 percent annual interest in three, six, or 12-month loan periods without collateral.

Reynold refused to disclose the company'€™s turnover target this year, stating that for now its primary goal was to win the market'€™s trust that the system offered secure alternative funding and investment options to the public.

'€œOur focus now is to make the market believe that the system is secure. Security is the keyword here,'€ he said, adding that money from the sources was channeled directly to the borrowers and not re-invested in other portfolios.

Before being verified as an eligible debtor, a potential SME operator must go through online psychometric testing, a kind of psychological test with Harvard Kennedy School standards. The test is conducted by Entrepreneurial Finance Lab and helps Modalku determine someone'€™s credit risk.

To better understand new markets and to reduce financial risk, the portal also requires that potential borrowers hold a bachelor'€™s degree, live in Greater Jakarta and have a monthly revenue of Rp 20 million.

'€œWe have to put in this kind of criteria for now because security is our main priority. Later in the future, when we better understand the market characteristics, we could change the requirements,'€ Reynold said.

Before this particular portal, Reynold and Kelvin had previously opened a similar portal in Singapore called Funding Societies, an operation legalized by the Singapore Monetary Authority. Since its establishment in July 2015, Funding Societies channeled S$3.2 million in loans to 37 Singapore SMEs and saw repayments of S$500,000.

In Indonesia, Modalku, established under PT Mitrausaha Indonesia Grup, has yet to see any law covering its area of operations.

The Financial Services Authority (OJK) has said that it was now in the process of making a regulation that could protect such businesses. '€œFor now, we see it as an online portal that links lenders and borrowers,'€ said Hendrikus Passagi, senior researcher for OJK'€™s strategic policy development division.

Data from the Cooperatives and Small and Medium Enterprises Ministry revealed that by 2013, the country had established 58 million SMEs, employing 114 million people, almost half of the nation'€™s population. However, SMEs only made up 23 percent of the country'€™s GDP.

University of Indonesia'€™s SME Center revealed that less than 2 percent of the 58 million SMEs in Indonesia earned over Rp 300 million a year because of a lack of business training and access to funding. (rbk)