P2P Lending in Southeast Asia with Kelvin Teo, Co-Founder of Funding Societies

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Miguel Armaza is joined by Kelvin Teo, Co-founder of Funding Societies (Modalku in Indonesia), the largest SME digital financing platform in Southeast Asia, licensed in Singapore, Indonesia, and Malaysia- and backed by Sequoia, Softbank, and many more. In four years, Funding Societies has helped finance over 2 million business loans with over $1 billion in funding.

Originally from Malaysia, Kelvin cut his teeth as a consultant working for a number of top management consulting firms. After getting accepted to Harvard Business School, he entered HBS thinking it would be a two-year break before going back to a career in professional services. However, inspired by a speech of Peter Thiel at Harvard, both Kelvin and, then classmate, Rey Wijaya realized there were plenty of entrepreneurial opportunities in SME financing back in Southeast Asia. They decided to partner up and launch Funding Societies.

Localizing a Successful Business Model

After observing the success of Lending Club and other peer-to-peer lending platforms in the US, Kelvin and Rey decided to take a similar business model and localize it in Southeast Asia. Singapore was Funding Societies’ first market, where they began offering term loans for SMEs, funded by individual lenders through crowdfunding. However, unlike places like the US, the wider ecosystem that helped launch similar companies wasn’t in place in their market. For starters, the fintech environment in the region was just being developed and Funding Societies had to blaze its own trail when it came to building partnerships and recruiting talent. Additionally, there was no regulatory framework for what they were trying to do and they had to simultaneously work with the government on helping propose new regulation while also self-regulating their activities to ensure they helped create a sustainable and fintech-friendly environment.

In the last five years, Funding Societies has expanded significantly and closed multiple funding rounds, including a $40m series C announced in April 2020. On the product side, they now serve large and small borrowers, offering term loans, trade finance lines, and microloans customized for SMEs in the local online and offline economy. They have also expanded their lender base to include individual lenders and multiple institutional partners with large and healthy balance sheets. Moreover, the company has expanded well beyond Singapore, covering Indonesia, Malaysia, and Thailand, with plans to penetrate the six largest economies in Southeast Asia. They are also working on securing a Digital Banking license from Singapore which they expect will turbocharge their growth and further diversify the product suite.

Southeast Asian Fintech Landscape and COVID Challenges

When Funding Societies launched in 2015, the Fintech ecosystem in the region was just getting started and over the last five years, the company has grown and matured along with the industry. Although there are now some market leaders in certain fintech verticals, the highly fragmented nature of the Southeast Asian markets poses a scaling challenge for startups and most sectors still have plenty of room to grow. The only two verticals that Kevin highlights as somewhat mature and ripe for consolidation are Lending and Payments.

Navigating the COVID crisis hasn’t been easy but it has also presented an opportunity to prove their underwriting model under stress. As the effects of the pandemic began to unravel, they preemptively increased the level of credit scrutiny and almost immediately began to see a surge in demand for short term financing, followed by higher delinquency and default rates. At the same time, crowdfunding investors have been conserving cash and sitting on the sidelines for some deals, which is why their institutional relations with balance sheet lenders have become extremely important and have allowed them to continue operating seamlessly. Overall, around 20% of their portfolio borrowers have been impacted directly or indirectly by COVID. Interestingly, their relationship with the regulator has strengthened meaningfully throughout the pandemic as government officials recognize banks may not be the best channels to provide much-needed support to SMEs throughout this time.

Talent Management and Entrepreneurial Advice

An evolving fintech sector has also made it easier for Funding Societies to recruit top talent. Long are the days when qualified candidates would get excited about the company, but decide against joining after discussing it with their spouse. Nowadays, the company is mostly focused on promoting from within or hiring for cultural fit. When bringing someone new, Kelvin stresses the importance of understanding the “bottom of the iceberg” of a candidate’s personality and not just the tip that comes out during interviews. Through some very painful lessons, they have learned to always include a junior employee as part of the interview process, particularly when hiring senior leaders.

Finally, Kelvin is extremely passionate about his work and clearly enjoys the entrepreneurial process. For anyone considering following his footsteps, he encourages future founders to reflect on three things before launching a business:

1. Having the passion to carry you through the hard times.

2. Focusing on solving a big problem for the world.

3. Having a reasonable chance of becoming the number one player (or a very competitive one) in your space.

About Kelvin

Kelvin Teo is the co-founder of Funding Societies. Selected as one of the Top 200 FinTech Influencers in Asia and appointed Co-Chairperson for the Marketplace Lending Committee of Singapore FinTech Association, Kelvin has spoken at major conferences such as LendIt Shanghai, Boao Hainan and Money20/20. He has also been featured on Bloomberg, BBC and Business Times. Prior to this, Kelvin served as a consulting professional at KKR, McKinsey and Accenture. Kelvin graduated from Harvard Business School and National University of Singapore, and is a certified Chartered Accountant.

About Funding Societies

Funding Societies | Modalku is the largest SME digital financing platform in Southeast Asia. It is licensed in Singapore, Indonesia and Malaysia, and backed by Sequoia India and Softbank Ventures Asia Corp amongst many others. It provides business financing to small and medium-sized enterprises (SMEs), which is crowdfunded by individual and institutional investors. In 4 years, it has helped finance over 2 million business loans with over $1 billion in funding. It was given the MAS FinTech Award in 2016, the Global SME Excellence Award at the United Nations’ ITU Telecom World in 2017, Brands for Good in 2019, and recognized by IDC as amongst the 5 fastest growing FinTechs in Singapore in 2020.