KoinWorks sets up Protection Fund for lenders

• Assigns 20% to 30% of the revenue received by the company to the fund
• Compensation will be made based on the risk level of lenders

INDONESIAN peer-to-peer (P2P) startup KoinWorks will offer protection initiatives to lenders on its platform through the Protection Fund. The Protection Fund was initiated to compensate investors for funding losses due to non-performing loans (NPLs).

The Protection Fund was created to minimise the loss of an investor's capital in case of a default. The amount of compensation the investor receives depends on the funds being loaned.

KoinWorks co-founder and chief executive officer Benedicto Haryono (pic) tells Digital News Asia that although all small and medium enterprises (SMEs) went through an evaluation and validation system, unexpected incidents will occur.

“Any unexpected risks may happen and we want to provide a more comfortable service to our users. This protection fund is part of it,” he adds.

As of July 2017, KoinWorks has 1.2 billion rupiah (US$90,000) in the Protection Fund. The funds are made up of 20% to 30% of the revenue received by the company.

Benedicto says that there his company is moving to build a partnership with a credit insurance company to further bolster the Protection Fund.

Currently KoinWorks has 0.2% NPLs. A loan is categorised as being in default when the borrower is 90 days late in paying instalments and does not provide information related to the delay.

Within 30 days of the loan being in default, KoinWorks will use the Protection Fund to to reduce capital losses.

A capital loss is the difference between the amount of start-up capital and the total payment received from the loan repayment. Within the same time frame, KoinWorks will immediately remove the loan after an announcement of the default.

The Protection Fund was officially registered with the Financial Services Authority (OJK) in April and aims to protect 100% of the investment funds.

KoinWorks has established five levels of compensation for reducing investment losses in different loan categories from Grade A to E. The Grade is generated based on the risk level of the borrower as analysed by the KoinWorks team.

The range of compensation given to investors will vary, ranging from 20% to investors in grade E, up to 100% for grade A investors.

Challenges in fintech

Benedicto says that KoinWorks has only received angel funding thus far and he is in discussions to obtain Venture Capital (VC).

He also shares his take on investments from China in various startups especially in e-commerce.

“Investors from China will not only bring in capital but also talent. But at the same time, it will be hard for them to bring in retail investors due China’s currency controls.

“If we want to bring retail investors in, it’s best to pulls investors from free trade countries such as Singapore and Hong Kong,” he explains.

Benedicto admits that his company faces challenges in terms of the lack of data and education to for the unbanked market.

To cater for these challenges, Benedicto says that KoinWorks will focus on reaching out to more unbanked SMEs to enable them to get loans from KoinWorks.

“Now we are not only reaching those who get their information online, but also SMEs that are not connected yet.”

Currently there are 2,000 to 3,000 lenders per month with a total reimbursement of 40 billion rupiah (US$3 million) from 400 borrowers to 17,500 lenders.

Benedicto targets for KoinWorks to receive total underwriting of 20 billion rupiah (US$1.5 million) per month by December 2017. It had reached 14 billion rupiah (US$1.05 million) in August.

“Our strategy is to do direct marketing to our targeted market and enhance the usage of machine learning to validate the data of our borrowers,” he says.

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