Small loans to tide you over till payday

By Masyitha Baziad February 12, 2016

Fintech startup UangTeman survives storm of bad publicity to land undisclosed funding
Dispenses small, short-term loans to help people survive until their next paycheque

Small loans to tide you over till payday

FROM being called ‘worse than loan sharks,’ to more neutral reviews saying that it is almost impossible to get a loan from the site, UangTeman is surviving, and indeed, seemingly thriving.

Speaking recently to Digital News Asia (DNA) in Jakarta, its cofounder and chief executive officer Aidil Zulkifli (pic above) admits that he struggled with the bad publicity at first, but managed to use it as a free promotional tool.

“We are now nine months old, running fast and doing pretty well. As a startup, you should never be afraid of bad press; you just need to learn how to manage it,” he says.

UangTeman, or ‘Friend’s Money’ in English, started operations in April 2015, and has been growing 20% to 25% month-on- month since, according to Aidil.

The financial services technology (fintech) startup dispenses payday loans to people in need: Small, short-term loans to help borrowers survive for their daily needs until their next paycheque.

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Borrowers can take up to a maximum of Rp2 million (US$148.60) and a minimum of Rp1 million (US$74.20) the first time, but are charged a 1% interest rate per day for the next 18 to 25 days.

While many see the 1% daily interest rate as too much, Aidil argues that this is the only charge that customers have to deal with – there are no administration or processing fees.

He maintains the interest rate is “relatively okay” compared with the risk the startup faces every day.

“We are not a bank; we do not collect money from people. The money we lend to our customers comes from our own ‘friendly’ pockets,” declares the Singaporean-born former lawyer.

He also stresses that UangTeman is not competing with the banks, but with the loan sharks and informal lenders in the market.

“The loan ceiling will increase to Rp3.5 million (US$260) and the interest rate will go down when the borrower shows good credit behaviour and has borrowed a few times already.

“The majority of people in Indonesia are surviving from paycheque to paycheque; if they need extra money, UangTeman will be there for them, like a friend.

“It is all about making a big impact – it’s about building a business where on the one hand, you can make money, yet on the other, you can make a positive impact on society,” he adds.

Due diligence

The main challenge for any lending business is a comprehensive background check of the potential borrower. UangTeman depends on technology for this kind of due diligence, according to Aidil.

“We have our own technology and algorithms that will do the initial background check using a lot of data points,” he adds.

While stressing that safety and privacy are also critical for the business, he argues that maintaining a low level of non-performing loans is the goal. And in this, UangTeman relies heavily on the technology it has built.

Customers will find out whether their application is approved or not instantly. For those who are approved, UangTeman’s operations team will continue to monitor to ensure there is no fraud.

“Once everything is approved, customers will receive the money in their bank accounts in three to 24 hours,” Aidil promises.

Even though the loan amount does not sound like much, it seems to fit the needs of the target market UangTeman is serving.

From its internal survey, 30% of its customers are micro business owners; 25% use the loan for educational purpose; and around 20% use it to pay hospital and medical bills, according to Aidil.

Back to basics

The idea behind UangTeman was to give under-banked people access to financial products, especially to small and short-term loans that can serve their basic and daily needs.

“The target market is basically people who do not own credit cards. They have basic bank accounts, but the banks are not lending them money because they carry a high risk,” says Aidil.

A recent credit report on MSMEs (micro, small and medium enterprises) by industry regulator Bank Indonesia showed that MSME loans account for 18.5% of banks’ total credit distribution.

But of the total that goes to MSMEs, medium loans make up 48.1%, small loans have a 28.5% share, and micro loans make up 23.5%. By Bank Indonesia’s definition, a micro loan is one with no practical minimum up to a maximum of Rp50 million (US$3,718).

Sustainable business model

Although UangTeman has secured an undisclosed seed-funding round from investors that include Alpha JWC Ventures, Aidil claims the business model is sustainable and that the startup can survive without relying heavily on such external investments.

But the seed investment would be needed to scale its operations and reach more cities and suburbs in the country, and to open at least one contact centre office in each city it operates in.

“We have been making money from Day One, with our first customers, and I think this is also what attracted our investors,” Aidil claims.

He also argues that the investors were keen to invest in UangTeman because he is not from the financial services industry.

“If you want to change and disrupt the financial services industry, you must come from the outside, I believe.

“That way, you will be able to see different ways to deliver the same products; disruption can happen when we cross each other’s industry,” he adds.

Aidil says that UangTeman would likely pursue Series-A funding early next year, claiming it already has investors ready.

The plan now is to educate the market, especially people from suburban areas, as well as to open a contact centre office in West Java.

Currently UangTeman operates in Jakarta, Bogor, Depok, Tangerang and Bekasi (Jabodetabek), Yogyakarta, Solo, Magelang and Klaten.

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