Indonesia's eFishery dives into financing but plays it safe

In The Top Up this week, we explore eFishery’s farmer-financing business and analyze Modalku’s venture into multifinance. [Read from your browser]( The Top Up 💵 Welcome to The Top Up! Delivered every Wednesday via email and through the Tech in Asia website, this free newsletter breaks down the biggest stories and trends in fintech. If you’re not a subscriber, get access by [registering here](. Written by Budi Sutrisno Journalist Hello {NAME} While studying in the Indonesian city of Yogyakarta, I would have immediately thought of eFishery - not Gojek or Bukalapak - when I heard the word “startup” - partly because I didn’t really use any online transportation or ecommerce services until I moved to Jakarta. Another reason was that I had read about Gibran Huzaifah, the aquaculture firm’s founder, being included in Forbes’ 30 under 30 list. Later, I also learned about how Huzaifah went through tough times during his college years due to financial problems. The real challenge for Huzaifah at eFishery, which has enjoyed accelerated growth and a fast track to profitability, may have begun when it dived into lending two years ago. In its early days, convincing financial institutions to join hands with the company was a challenge, as my colleague Ardi explains in this week’s Big Story. Failed harvests - sometimes caused by uncontrollable factors such as the weather - could also lead to loans turning bad when farmers couldn’t make repayments. Nevertheless, eFishery is optimistic that its financing venture will work as it believes it has the tools, data, and strategy to mitigate risks. It’s also not monetizing the business just yet. Speaking of financing, Indonesia-based peer-to-peer lender Modalku has dipped its toes into the multifinance industry in Indonesia. With the sector already packed with tech and banking players vying for borrowers, how is Modalku positioning itself? More in this week’s Hot Take. – Budi  --------------------------------------------------------------- THE BIG STORY [Indonesia's eFishery revels in farmer financing foray, but there’s a catch]( The company is enjoying notable growth in the trouble-laden farmer financing industry but has chosen not to fully capitalize on the opportunity yet.  --------------------------------------------------------------- THE HOT TAKE Is there enough space left for Modalku in multifinance? Here’s what happened: - Modalku, an Indonesia-based fintech group, has ventured into [multifinance solutions]( after acquiring vehicle-financing firm Buana Sejahtera Multidana. - Called Modalku Finance, its multifinance subsidiary will direct the newly acquired firm’s focus to productive financing and expanding the group’s MSME capital financing. - This comes after a handful of multifinance companies in Indonesia recorded [an increase in profits]( in Q3 2022, including Bank Jago-linked BFI Finance. Here’s our take: In Indonesia, tech companies – even those not in the financial services industry – venturing into multifinance has become increasingly common. Earlier this year, payment gateway Xendit, for example, [acquired]( the merged entity of two multifinance companies, Globalindo Multi Finance and Emas Persada Finance. Meanwhile, online travel firm Traveloka [acquired]( Malacca Trust Finance (now Caturnusa Sejahtera Finance) to operate its pay-later services. Simply put, [multifinancing]( is the practice of providing capital to individuals or companies to buy goods and services. However, unlike banks, multifinance companies do not take in customer deposits and have to rely entirely on recovering their loans. For firms looking to offer financing, this facility is more cost efficient, given that the minimum capital requirement for a multifinance company is 200 billion rupiah (US$12.8 million), compared with 2 trillion rupiah (US$127.6 million) for banks. Expanding into multifinance increases the distribution limit for peer-to-peer lenders like Modalku from 2 billion rupiah (US$127,600) to 25 billion rupiah (US$1.6 million). Multifinance also complements Modalku’s existing P2P business, as both sectors target subprime customers banks cannot cater to, according to an industry source. This means that regardless of their differences, multifinance companies co-exist with banks to cater to riskier customer segments that the latter doesn’t serve. It also means that for non-P2P lenders like Traveloka, venturing into multifinance is not just a matter of expanding services but also increasing their coverage of customer segments. Despite the global economic downturn, [non-performing financing]( as a percentage of total loans lent out by Indonesian multifinance companies reached 2.54% as of October 2022, down from 3.89% in the same period last year. However, [players are still worried]( that the economic crisis could lead to high interest rates on loans and reduce demand for financing. Some are expecting “moderate” new financing growth of between 10% and 13% next year. See also: [As digibanks rise, will Indonesia’s online lenders become obsolete?]( With many tech players already offering multifinance solutions, will there be room for Modalku to compete? A possible strategy for Modalku is to tap into the productive uses of multifinance, such as working capital financing for MSMEs, over the consumptive ones like vehicle ownership financing. As Modalku Finance president director Steven Gunawan [notes]( the current multifinance scene has been dominated by financing for motorized vehicles and heavy equipment. At the end of 2021, 67% of outstanding multifinance went toward consumptive goods, especially personal vehicles, and 26% to more productive ones like commercial cars and heavy equipment, according to a Bisnis Indonesia [report](. MSME financing is not a new area for Modalku Group. It has operated joint financing services specifically for MSMEs in Indonesia for years now and also operates internationally under the brand Funding Societies in Singapore, Malaysia, Thailand, and Vietnam. Currently, the group has disbursed business capital of over 41 trillion rupiah (US$2.6 billion) through more than 5.1 million MSME transactions in all its markets, up from 29 trillion rupiah (US$1.9 billion) in Q4 last year, the company says. However, the gap in productive financing likely offers Modalku room to grow in this space. At the same time, it will also be competing with traditional banks that also have their own multifinancing programs for MSMEs, including [Mandiri Tunas Finance]( from Bank Mandiri, which channeled an average working capital of 52 billion rupiah (US$3.3 million) per month in 2022 through Cash Aja, its multipurpose lending service. Nevertheless, aside from Modalku, more multifinance providers in Indonesia could soon step up efforts in productive financing. In 2023, the Indonesian government, through the Financial Services Authority (OJK), is set to increase the [minimum productive financing limit]( from 5% to 10% of a firm’s total financing portfolio. Currency converted from Indonesian rupiah to US dollar: US$1=15,670 rupiah. – Budi --------------------------------------------------------------- NEWS YOU SHOULD KNOW Also check out Tech in Asia’s coverage of the fintech scene [here](. 1️⃣ [ShopBack raises $30m from Westpac as it gears up for IPO]( The funding round was “priced at a meaningful uplift” compared to the one in Q4 2021, according to ShopBack Group co-founder and CEO Henry Chan. 2️⃣ [FinAccel adds former Slack CFO to board]( Allen Shim helped build Slack’s finance and operational function and oversaw the acquisition of Slack by Salesforce. 3️⃣ [Line parent’s VC firm leads $2.3m funding for Korean ETF startup]( Akros Technologies will use the fresh funds to scale its investment products and partner with more financial institutions for its portfolio-management-as-a-service solution. 4️⃣ [Airwallex names new chief revenue officer]( Kai Wu is the firm’s first C-level hire based in Singapore. 5️⃣ [Paytm’s surprise share buyback plan draws skepticism]( The move follows a 75% dive in Paytm’s share price since its listing last November.  --------------------------------------------------------------- That’s it for this edition - we hope you liked it! 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