Small businesses are the backbone of the global economy – the entrepreneurial and innovative enterprises that will power the recovery from the Covid-19 pandemic. But small businesses the world over suffer from the same problem: all too often they struggle to access the finance they need to grow. That requires new solutions – and in South-East Asia, Funding Societies thinks it can help.
The business, founded in 2015 by Kelvin Teo and Reynold Wijaya, is today announcing a $144m Series C+ fundraising led by Softbank’s Vision Fund 2, as well as $150m of new debt lines from financial institutions in Europe, the United States and Asia. It offers a range of loans and credit products to small businesses in the region – advances start at as little as $500 but can be as large as $1.5m.
“We genuinely wanted to empower small and medium-sized enterprises (SMEs),” recalls Teo of the business’s launch. “We could see this huge opportunity for these businesses to benefit from the region’s demographic dividend, but we could also see many were going to miss out with access to finance.”
Seven years later, Funding Societies has made good on that ambition. So far, it has lent more than $2.1bn to businesses across the region, with more than 5 million loans disbursed. Based on a study conducted with Asian Development Bank methodology, the businesses it have backed have so far contributed $3.6bn to the region’s GDP and created as many as 350,000 jobs.
Banks in the region have never shown much interest in the SME sector, Teo says. For the most part, they’ve preferred to sell bespoke products to large corporate customers, where the size of the transaction justifies a tailor-made solution, or to concentrate on the mass retail market, where uniform products are cost-effective to manufacture. SMEs sit in the middle, requiring personalised service that the banks do not find sufficiently profitable given the size of the advances typically required.
Funding Societies attempts to bridge the gap. “First, we have the willingness to focus on SMEs,” explains Teo. “We have a passion for these businesses and understand what they go through – my co-founder’s family business almost collapsed twice because of problems with financing.”
Equally, the company has built a business model that is fit-for-purpose when it comes to serving SME customers. One part of the equation is a credit model driven by artificial intelligence that aids decision making on lending; the company benefits from a virtuous circle here because each new loan made brings in additional data that can be used to tweak the model.
The other side of the coin is that Funding Societies has deliberately set itself up as a “one-stop-shop” for SMEs. It offers traditional term loans, but also provides a range of trade-based finance options, such as invoice finance, as well as credit card facilities (which work much like a debit card with acredit line facility). This breadth of offer has been crucial in helping it to scale.
It helps, of course, that Funding Societies has this market largely to itself. “A common misconception is that we compete with banks,” adds Teo. “The reality is we compete with savings, friends and families, and business owners’ personal credit cards – there is a huge unsecured financing gap.
Having started out in Singapore, Funding Societies has already expanded into Thailand, Malaysia, Vietnam and Indonesia. In the last of those markets, the company trades as Modalku – localising the offer, even to the extent of building a different brand, is crucial to winning trust and acceptance among SME customers, Teo says.
Today’s funding announcement will help enable further expansion, with Funding Societies planning to launch in the Philippines next. The capital raised will also support further development of the platform, which has evolved into a neobank since its original launch. Teo sees significant potential in areas such as supply chain finance.
The company’s backers are excited by what is possible. “SMEs across South-East Asia have historically struggled to access institutional finance and instead been forced to mainly rely on personal funding to support growth,” says Greg Moon, managing partner at SoftBank Investment Advisers. “Funding Societies is establishing a bridge for these companies to access more sustainable and cheaper financing by building unique data sets on their performance and using AI-led technology to assess their creditworthiness more effectively than traditional models.”
Other investors in the round include VNG, Rapyd Ventures, EDBI, Indies Capital and Ascend Vietnam Ventures, as well as existing shareholders such as Sequoia Capital India and BRI Ventures.