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Offline engagement key to SMEs credit scoring
According to the 2019 e-Conomy SEA report produced by Google, Temasek and Bain & Company, there are 93 million underbanked people in Indonesia and only half of those with a bank account have access to services such as lending and insurance.
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gent-based payment technology company Payfazz CEO Hendra Kwik said the company’s strategy to have offline agents assess rural small businesses on the ground was the key to better credit scoring and prevent bad loan risks.
“One thing that we learn from banks is that they have people on the field to do offline verifications. Our offline agents also assess SMEs [small and medium enterprises] so we can better serve them with lower risk,” Hendra said during an online conference hosted by Tech in Asia on Thursday.
He added that Payfazz, which secured a US$58 million series-B fund in July, had yet to make a profit from its lending product. However, the company’s core business, namely bill payments and money transfers, has been profitable.
Hendra also said that peer-to-peer (P2P) lending was a good way to boost financial inclusion, but challenges remain as microbusinesses were often difficult to handle and lacked digital and financial literacy, with most people never having used a fintech or financial product.
According to the 2019 e-Conomy SEA report produced by Google, Temasek and Bain & Company, there are 93 million underbanked people in Indonesia and only half of those with a bank account have access to services such as lending and insurance.
The country has been pushing for greater financial inclusion with experts calling on fintech firms to branch out their services beyond the island of Java.
The Indonesian Fintech Association (Aftech) reported that by the end of the second quarter of this year, it had 362 fintech start-ups members. Its recent survey showed only 23 percent of fintech companies have a reach outside of the most populous island, while 41 percent have operations in Greater Jakarta.
More than half of the respondents, however, said they had set their sights on the unbanked and rural population as a target market.
“Despite many fintech apps, the problem of people onboard the platforms persist. This means the launch of new fintech products does not mean that everyone will be included,” Hendra said, adding that fintech firm should not only focus on product innovation but also reaching out to rural consumers.
“There is a long way to go, but collaborations can foster more inclusion.”
Meanwhile, P2P lender Modalku cofounder and COO Iwan Kurniawan said that while the COVID-19 pandemic had led to an increase in bad loans, it had also boosted people’s appetite for lending.
The company’s non-performing loan (NPL) rate stood at around 2 percent amid the health crisis, relatively better than the industry average of 7.9 percent as reported by the Indonesian Fintech Lenders Association (AFPI) in September.
“SMEs and retail loans are impacted, while micro-businesses are the hardest hit by the pandemic,” he said at the conference. “But we also see 20 times more traffic on our platform.”
Recent Financial Authority (OJK) data shows that P2P lenders disbursed loans totaling Rp 121.87 trillion (US$8.29 billion) as of August, more than double the Rp 54.72 trillion issued over the corresponding period last year.
Editor's note: This article has been revised to correctly state Modalku cofounder and COO name, Iwan Kurniawan.
