Bank Sinarmas allocates US$760K to Funding Societies’ Modalku platform

By Masyitha Baziad August 5, 2016

Bank Sinarmas aiming to fund more SMEs through Modalku
Modalku wants to partner with more banks to empower SMEs

Bank Sinarmas allocates US$760K to Funding Societies’ Modalku platform

INDONESIA’S Bank Sinarmas has partnered with peer-to-business (P2B) lending startup PT Mitrausaha Indonesia Group (Modalku), allocating Rp10 billion (about US$760,000) for the latter’s platform to fund micro and small and medium enterprises (MSMEs).

Bank Sinarmas, part of the conglomerate Sinar Mas Group, has been Modalku’s escrow agent since February, a month after the soft launch of the platform in Indonesia.

“Our DNA (deoxyribonucleic acid) is partnership and collaboration to achieve our vision of financial inclusion, to empower MSMEs even in the most remote areas in Indonesia,” Modalku cofounder and chief executive officer Reynold Wijaya said at the official signing ceremony in Jakarta on Aug 4.

“Bank Sinarmas has been amazing since the day we launched – it wants to finance more MSMEs and it wants to reach them more quickly, and this partnership will do just that,” he added.

Modalku is the Indonesian unit of Singapore-based financial technology (fintech) startup Funding Societies, which just landed a US$7.4-million Series A round.

READ ALSO: Compliance a big part of Funding Societies’ US$7.4mil Series A

For Bank Sinarmas, the partnership will further strengthen its MSME credit portfolio. The bank’s MSME credit distribution grew 10% in the first half of the year, to Rp1.25 trillion (US$95.2 million), or about 18.3% of the bank’s total credit portfolio.

Regulator and central bank Bank Indonesia requires all banks to have the MSME segment make up 20% of their total credit portfolio by 2018.

With the Modalku partnership, Bank Sinarmas is aiming to meet this 20% requirement by next year, its president director Freenyan Liwang told Digital News Asia (DNA).

“Fintech startups are not our enemy, nor are they competitors. They are partners that can help us in our digital transformation and evolution,” he said.

“They give us a chance to reach the audience that we could never reach before,” he added.

Since January, Modalku’s P2B lending platform has distributed Rp10 billion (US$760,000) to more than 30 SMEs in the country, according to the company.

Freenyan said that MSMEs with revenue in the range of Rp10 million (US$762) to Rp100 million (US$7,620) are the “missing middle,” meaning that they have potential but are not very bankable.

“There is a potential loss of US$130 billion from Indonesia’s gross domestic product (GDP) if we do not give MSMEs the financial support to help them grow,” he said.

A lending platform like Modalku makes it possible for this group of MSMEs to get funding and grow their business, he added.

Make the partnership works

It takes two to tango and Reynold said the first move came from Bank Sinarmas.

“I remember receiving an email from Indra Widjaja, the president commissioner of Bank Sinarmas,” he said.

“I was shocked, I thought that was a scam – who am I to receive a note from the Indra Widjaja,” he quipped.

But Reynold said he decided to reply, and received a response from Indra requesting for a Skype call.

“It was 2pm in Jakarta but I was still in Harvard, so it was about 2am there. I was in my old t-shirt and shorts, in my bed,” Reynold admitted.

“When the Skype call came on, it was with the whole board of Bank Sinarmas – everyone was there … and there I was in my old t-shirt,” he said.

For Bank Sinarmas’ Freenyan, the partnership is plain common sense.

“Bank Sinarmas wants to really reach out to the remote areas – we have 350 branch offices in 166 cities, but that is not enough,” he said.

“If we were to go it alone, trying to be a hero, we would die. It is expensive and we do not have the capability to do it – we needed a technology partner,” he told DNA on the sidelines of the signing ceremony.

When asked about the challenges he faced in forging the partnership with Modalku, he answered, “Changing the mindset of my own people.”

Freenyan said that while the top executives at Bank Sinarmas ordered employees to hasten the partnership process, it did not happen right away.

“My employees were thinking that the partnership would be risky and adverse … I had to step in, explain to them that the partnership would not be harmful to the bank.

“I then invited Reynold and my own team into my office, locked the door, and told them that nobody gets out of this room until we have a tangible result regarding the partnership,” he admitted.

But Freenyan acknowledged that partnerships with startups can be risky, which is why the bank is rolling out only Rp10 billion at first.

“We did not go in blindly and roll out our money carelessly – we know Modalku, we know what it can do, we know the founders, and after we did our own risk management and research, we decided that Rp10 billion was a good amount to test the partnership,” he said.

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