The importance of small and medium enterprises (SME) in the Southeast Asian region cannot be accentuated enough.

According to the Association of South East Asian Nations (ASEAN), SMEs account for between 88% and 99% of total establishments in ASEAN member states and between 51% and 97% of total employment. The contribution of these enterprises to each state’s gross domestic product (GDP) is between 30% and 53% and the contribution of SMEs to exports is between 10% and almost 30%.

Yet this sector faces a lot of systemic hurdles when it comes to raising funds.

Traditionally, the options were limited to raising funds through friends and family or through financial institutions where SMEs may not be the key target segment. Banks often require collaterals and prefer to give loans to prime credit borrowers aside from longer-term loans and lengthy processing time. Unfortunately, there are SMEs that do not have these collaterals, probably due to low credit history, and thus find it difficult to raise funds.

This led to SME and micro SME (MSME) segments to become financially underserved. According to the International Monetary Fund’s Financial Access Survey, the outstanding loans to SMEs from banks was only 6.54% of GDP in Indonesia in 2018.

In order to solve this market inefficiency, several peer-to-peer (P2P) lending companies brought individual lenders and borrowers together on their platform and these flourished.

Soon after, P2P lending in Indonesia experienced rapid growth. Based on data from the OJK, the Financial Services Authority of Indonesia, the P2P online lenders have channeled loans totaling to $3.52 billion (IDR 49.79 trillion) as of July 2019, a 119% increase year-to-date.

Modalku is among the pioneers and it operates across three countries in South East Asia: as Modalku in Indonesia and under the brand Funding Societies in Singapore and Malaysia.  

“We aim to be the largest digital lend...

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