Small and medium-sized enterprises (SMEs) account for nearly 50% of Southeast Asia’s GDP, contributing significantly to job creation, innovation, and overall economic expansion. Despite this vital role, SMEs face persistent capital shortages due to being viewed as too risky for traditional banking institutions. Consequently, those that do qualify often find themselves subject to exorbitant interest rates.
This challenging financial landscape caught the attention of Kelvin Teo and Reynold Wijaya, two entrepreneurs who forged a connection while pursuing graduate degrees at Harvard Business School (HBS). The pair shared a vision inspired by HBS’ mission to “make a difference in the world,” and their commitment to promoting entrepreneurship in their home region crystallized during their time in academia.
Reflecting on their journey, Teo remarked, “We had grown up as underdogs, felt privileged to be at HBS, and wanted to pay it forward to Southeast Asia. SMEs resonate with us and financing is their biggest pain point.” Their shared vision led to the inception of Funding Societies, a fintech platform striving to bridge the financing gap for SMEs.
Founded in Singapore in 2015, Funding Societies has since extended its reach across Southeast Asia, with licensed offices in Indonesia, Malaysia, Thailand, and Vietnam. The platform’s impact is notable, having facilitated over $4 billion in loans to more than 100,000 businesses. Recently, they secured $25 million in equity funding from the Cool Japan Fund (CJF), marking CJF’s inaugural investment in Southeast Asia’s fintech sector.
Funding Societies has amassed approximately $250 million in total equity funding to date. This investment influx has seen contributions from both strategic backers like Khazanah Nasional Berhad and Maybank, both of which have played significant roles in the startup’s financial growth.
The entrepreneurial backgrounds of Teo and Wijaya shape the core of Funding Societies. Teo’s prior experience with major firms like Accenture, McKinsey, and KKR Capstone meets Wijaya’s involvement in his family business in Indonesia, providing them with a unique perspective on market needs. Their orientation towards research led to an understanding of how similar companies in the U.S. achieved notable success, informing their strategies.
Today, Funding Societies helps SMEs across its operational territories by providing varied financing options, including term loans, micro-loans, receivable/payable financing, and asset-backed business loans, tailored to meet the diverse demands of businesses. The financing amounts range from $500 to $2 million, allowing SMEs to address immediate and short-term financial needs effectively.
Setting itself apart from competitors like Validus and Bluecell Intelligence, Funding Societies positions itself as a one-stop shop, providing a comprehensive range of financial services through both online and offline channels. This holistic approach includes short-term financing, supply chain financing, and integrated payment solutions, making it immensely valuable for SMEs navigating the complexities of funding.
The future of digital financial services in Southeast Asia appears promising, with forecasts suggesting a significant increase in revenue, led by digital lending, expected to comprise about 65% of the overall earnings. As organizations adapt to evolving market dynamics, the need for responsive and reliable lending solutions becomes more critical.
Since securing a landmark $144 million funding round led by the SoftBank Vision Fund 2 in February 2022, Funding Societies has observed a consolidation trend within the Southeast Asian SME lending market. This consolidation reinforces its position as a market leader, especially as competitors face challenges amid a tightening funding climate.
Interestingly, conditions that have created hurdles for some firms could present opportunities for Funding Societies. Teo pointed out the potential for increased consolidation among fintechs focusing on credit, given that many companies are unable to raise the necessary capital to sustain their operations in today’s complex environment.
The broader economic landscape has changed substantially since early 2022, with U.S. banks facing turmoil that has affected credit supply among non-bank lenders and a series of interest rate hikes increasing borrowing costs. Such market shifts have ripple effects, compelling fintechs to rethink their strategies while simultaneously opening avenues for agile competitors to thrive.
In response to these market dynamics, Funding Societies has made strategic acquisitions, including its first acquisition of Sequoia-backed payments fintech, CardUp, in December 2022. This move nearly tripled its revenue while keeping employee numbers stable, showcasing its ability to grow opportunistically even in difficult times.
Funding Societies’ impact extends beyond economic metrics. A collaboration with the Asian Development Bank (ADB) in 2020 produced a report revealing that the platform’s supported MSMEs contributed approximately $3.6 billion to GDP and generated around 350,000 new jobs. Furthermore, the quick disbursement of funds facilitated a revenue boost of 13% for SMEs using the platform, highlighting the vital role of efficient financing.