Recently, Techsauce interviewed Akselaran to gain insight into what this forward-thinking funding platform entails, what the Indonesian landscape is like and what the future holds for this emerging country.
Akseleran was founded by three young professionals: Ivan Tambunan as the Chief Executive Officer (CEO), Mikail Tambunan as the Chief Financial Officer (CFO), and Christopher Gultom as the Chief Investment Officer (CIO). The three of them were working professionally at well-known companies such as Allen & Overy Law Firm, Deloitte, and AJ Capital. They felt that they can contribute more to the country.
They saw the need for making financial inclusion in Indonesia into reality. Indonesia is a country with one of the largest population in the world (around 260 million), but access to financial service is still limited. A lot of profitable SMEs cannot get access to business loans due to lack of proper documentation & collaterals, while there are still less than 1% people that have started an investment due to lack of knowledge & access.
To strengthen the core product, two key members joined later on: Rassel Pratomo as the Chief Technology Officer (CTO) and Elquino Simanjuntak as the Chief Credit Officer (CCO). Lastly, to accelerate the adoption of this platform in the market, Andri Madian was recruited as Chief Marketing Officer (CMO).
To finance the team at this early stage, Akseleran acquired initial funds from several angel investors, which is sufficient to create a minimum viable product (MVP) and to do product-market fit testing.
Crowdfunding is a fundraising method where an individual or institution is raising fund for their project (mostly for business purposes) and the funds came from a group of people (investors/lenders/etc) who are interested in the project, connected by a digital platform.
The most obvious benefit of crowdfunding is that a fundraiser can have an easier way to raise funds. Due to the collective nature of crowdfunding, as long as the project can give attractive returns/rewards, it will attract a large number of crowd investors that have excess income to be invested. This spreads the investment to multiple sources, not only on a single individual/institution, reducing dependencies.
Crowdfunding is also a cost-efficient way to reach potential investors, as it is normally done using a digital platform. Fundraisers and investors do not need to meet directly, but they can interact only on the platform.
If we can clarify it a bit, what we offer through our platform is a Peer-to-Peer (P2P) Lending platform, and our main target is small-medium enterprises (SMEs), especially the medium-sized. We’re using crowdfunding concept to help SMEs in raising business loans from crowd investors/lenders.
Before we launched our P2P Lending, we did have an Equity Crowdfunding platform. We were the first Equity Crowdfunding platform in Indonesia, which opened funding opportunities for early-stage startups in return for their shares. But then we saw that the market was still not ready for equity-based crowdfunding, and more inclined to P2P Lending which can give faster returns.
Moreover, the regulation about Equity Crowdfunding has not been set yet, thus the trust from the crowd investors is still low. We are waiting for the right moment, but we're going to relaunch our Equity Crowdfunding platform again, given the right circumstances.
In terms of success stories, we can give some examples from our P2P Lending platform. There are several creative agencies that needed working capital to work on some projects, but they cannot apply for a loan to conventional banks due to lack of collaterals (usually in a form of land and building). These agencies have successfully obtained business loans from Akseleran with their invoices as the collateral, in less than 30 days.
Another example is from a fashion product distributor. This distributor needs to buy inventory to be sold but they are short of the required fund. They obtained the business loan from Akseleran to buy the inventory and this inventory acts as the collateral for Akseleran. They just need to regularly replenish the inventory to match the collateral value during the loan term.
The tech startup in Indonesia was dominated by E-Commerce, Travel, and Ride-Hailing startups in the past few years. Most of these categories already have a winner in Indonesia (indicated by the rise of 4 Unicorn Startups from across these categories), thus it wouldn’t be smart to enter these categories unless we have a niche offering/market. The awareness and regulation of these categories are also pretty established by now.
Now the landscape shifts to Financial Technology (Fintech). There was 78% growth in terms of the number of Fintech Startups from 2015-2016 and 39% growth during 2016-2017. The transaction value was around US$ 15.02 Billion in 2016, and it grew 24.6% in 2017. From 165 Fintech startups in Indonesia, 43% is in the Payment sector, 17% in the Lending sector, and the rest is in a form of aggregator and other solutions.
Fintech is still relatively new in Indonesia, and we are hoping to have a new Unicorn Startup from the Fintech industry. The 4 Indonesian Unicorns, although originally, they’re from different categories, also interested in this potential and already making their moves to grasp some piece of the pie of Fintech Market in Indonesia.
As a relatively new startup in a new industry (Fintech), the biggest challenge would be in gaining trust from our potential users (especially from investors/lenders). There is only 1% of Indonesia that have already made investments in the stock market, thus it reflects the nature of Indonesians that are still reluctant in making investments.
Most of the middle class were only relying on savings or time deposits, which is the most secure form of investment but also only give a low return. The lack of knowledge about investments and cases of fraud investments in Indonesia made most of Indonesians are reluctant to make investments. This barrier is doubled by the novelty of Fintech industry in Indonesia, which also need to gain trust as a credible solution in the financial industry.
If we’re talking Indonesia as a country, the biggest macroscopic challenges would be in the weak law enforcement and education. Indonesia is well known for its high level of corruption. One of the main reason would be the weak law enforcement. It is often that people in a powerful position in Indonesia can get away with corruption. It created a “toxic” culture where people would think that it is okay to do corruption as a quick way to be rich, without having to do real work. The law needs to be strongly enforced without exception to solve this problem.
Education is also one of the problems in Indonesia. There is a disparity in terms of education levels across the country, which is mainly concentrated in the Java Island. In the near future, there will be a lot of people in the productive age, but they will have low skills and knowledge. This will lead to problems, where new complicated challenges will emerge but there will be a lack of capable talent.
In the specific context of challenges for startups in Indonesia, the most prominent challenges would be on logistics and unequal distribution of Internet access. Indonesia is a big archipelago, comprises of thousands of islands and it gives a major challenge in terms of logistics. It is not that easy to transport goods from one island to other islands, thus increasing the supply chain cost for startups that rely on physical goods.
Most of the development in Indonesia is being concentrated on the Java Island, including for the infrastructure that supports Internet connection. Hence, the internet connection outside of the Java Island experience problems more often. This reduces the capability of equal information dissemination throughout the country, which can reduce the probability of innovative startups emerging from these islands.
As previously mentioned, we’re now focusing on P2P Lending, not Equity Crowdfunding, thus we do not invest in startups anymore. But if we can share some of our experiences when we’re still doing Equity Crowdfunding, we think that the biggest risk comes from the sustainability of the startup, which will cause two major risks for investors: Principal risk and return risk.
There are a lot of factors influencing the sustainability of a startup, but it will always go down to the most critical elements: the product/service, the people behind it, and its scalability.
Does the product/service can solve real problems which are experienced by a lot of people, and would these people pay for the product/service offered? Are the team members capable enough to grow the startup? And is it easy enough to scale up the startup?
If their sustainability is not good, then it would have a big probability of defaulting. This will result in the total loss of capital invested in this startup, which is a principal risk. The second one is returned risk. Startups can have returns projection on paper, but when the market adoption is slower than expected for example, then the investors would need longer time to start gaining expected returns.
Indonesia’s Fintech industry is still in infant stage, there is still a lot of opportunities in this industry, especially in P2P Lending. There is still less than 1% population that have made an investment, thus there are still many potential new investors that can support our business in the future.
With the rise of Fintech awareness, the large number of Fintech startups emerging, and the support of the government in increasing financial literacy, our company prospect in Indonesia is looking very good. Thus, we’re still going to strengthen our existence in Indonesia before we expand to other countries. Currently, we do not have an official link with foreign partners in the investment worlds, but we do know some of them.
In the Fintech P2P Lending industry, we can say that Akseleran is one of the most flexible and the most secure platform. We’re giving more flexibilities for SMEs in acquiring business loans, and we’re providing several security measures for investors/lenders.
SMEs can use collaterals or without collaterals when applying for a loan, although we encourage them to provide collaterals as it can reduce their interest burden.
The collateral itself can be in any form: invoices or purchase orders, inventories, equipment/ machinery, vehicles, and land/buildings. Loan terms are also flexible, ranging from 1 to 24 months.
Investors/Lenders should also feel safer when lending their money through Akseleran as we provide collaterals in 98% of our loan portfolio. We are also only focusing on profitable mid-sized businesses with good credit history, thus it should reduce the risk of non-performing loan (NPL). Recently we also have acquired ISO 27001 certification, an international standard in the information security management system (ISMS), this user’s data will be protected. We’re the second P2P Lending startup in Indonesia that have acquired this international certification, out of 40 registered P2P Lending startups.
We have several products being developed in the pipeline to cater more market segments in the Fintech industry. We also plan to do a lot of collaboration that can bring added value to our platforms. One of the collaborations that we’re planning to do is with conventional financial institutions, where they can channel their funds also through our platform.
We predict that more startups will emerge in the coming years. The Indonesian government has a target of having 1000 new startups by 2020, which will accelerate the number of startups emerging. More investment from foreign institutions/venture capitals/investors would also come to Indonesia as Indonesia has a good investment grade rating from all major rating firms.
But the number of these startups will gradually be decreased as there would be natural selection of survival. For example, building a Fintech startup requires specific skills and knowledge in the financial industry, combined with robust and up-to-date technology, rapid execution of adoption plan, the ability to acquire an official operating license, and also sufficient funding. Not all startups would have these capabilities, which will make them only short-lived.
The Fintech industry might also converge with other industries, as existing unicorns from other industries or conventional financial institutions might acquire the potential Fintech startups to accelerate their growth. We predict that in the next 3-4 years, there would be a clear winner in the Fintech industry.
It is clear that the Indonesian startup scene is still in the very early stages, however with the right investment, focus and support from the government and other financial institutions, Indonesia can become a strong player within South East Asia.
Techsauce is diving further into the Indonesian ecosystem and will be providing more information on this frontier market.
For more information on Akseleran, head over to https://www.akseleran.com/