Why are SMEs losing out when fundraising from banks and financial institutions? And what can be done to empower their personal economies?
In our feature with Smartup, our very own COO & co-founder Ronnie Chia shared on how our online platform bridges gaps between underserved borrowers and retail investors.
Plus, tips on how investors can better diversify their portfolios. Read on to find out more!
Bridging the gap between retail investors and underserved borrowers
It all started with a single Whatsapp message in February 2016.
The burning question: how do we empower underserved SMEs and small businesses? With that goal in mind, founder and CEO Charis Liau started Minterest with her team.
Launched in May 2017, the digital platform connects businesses with retail investors. Since then, the Monetary Authority of Singapore-licensed startup has facilitated $11 million worth of transactions.
With over 120 years of combined banking and financial experience among its founders, Minterest generates quick, verified credit ratings, and closes deals efficiently. “Our deals get done as fast as one minute for a $50,000 loan to – the fastest for a $200,000 loan— less than three minutes. Otherwise, it takes 30 to 60 minutes for deals to be completed,” shares co-founder and COO, Ronnie Chia.
Minterest also enables retail investors to easily and conveniently sign up, top up their e-wallets, view loan requests, invest, and view real time analytic reports of their investments on one single channel.
Ronnie Chia, COO & co-founder of Minterest.
But why are banks reluctant to loan smaller businesses money?
- It’s cost-ineffective
“It sometimes costs them more money to process your loan than the amount loaned in itself!” says Ronnie.
Moreover, SMEs tend to incur higher capital requirements. Each time a bank lends money, it needs to set aside capital.
Here’s where it gets problematic: SMEs tend to be high-risk, meaning there is a higher chance they might not be able to repay debt in time. As such, banks need to set aside more capital to anticipate this possible failure.
Minterest uses its automated credit rating system to make borrowers access loans easily. Thanks to its proprietary algorithm to churn out ratings, the startup uses a much shorter chain of communication compared to banks.
The result? Faster credit rating results, a more cost-effective process, and better access to loans.
- There’s little return of investment
“There’s also no foreign exchange for banks to make from SMEs, no cash management, no other business or cross-selling opportunities. So, banks will ask, ‘Why should I bother?’
As such, many banks—especially international banks—are moving away from SME businesses because it costs them too much money.”
How does Minterest help retail investors?
It opens up a variety of new investment possibilities for them.
According to Ronnie, investors want to diversify their portfolio. However, they often face difficulties investing in any business they please. After all, most SMEs would first have to go to a bank, finance company, or private investor.
Here are 3 tips for investors:
- Don’t put all your eggs into one basket
“If you have $50,000 to invest, do not invest in 2 or 3 deals. Use that $50,000 and invest in 20 deals. The whole idea is to diversify your investments. Diversify so you can earn returns you are happy with.”
- Invest in industries that have a low co-relation with each other
“Let’s take Real Estate and Building Construction as an example. If something goes wrong with Real Estate sector, all your investments in Building Construction get hit. But if you invest in something else like F&B, you avoid huge negative impact.”
- Don’t favour a specific industry
“No matter which economic cycle you’re in, every sector has an equal potential to be a winner or loser. It’s more about picking winners and avoiding as many losers as you can.”
There are 700 million people in Southeast Asia. Of this group, 70% are unbanked. It’s no surprise then that Minterst plans to take its platform to this region of opportunity.
“Over the next 12 to 18 months, we’re looking to move our services to Indonesia, Malaysia, Thailand, and the Philippines—possibly India too,” shares Ronnie.
“Many SMEs consist of mom and pop stores between 5 to 10 employees. By helping them with fundraising, we hope to positively impact their lives and change their personal economies.
“Yes, many of them do not have a bank account, but they have mobile phones and an internet connection.
So, even a farmer or lorry driver in a small town can gain access to loans beacuse of social and mobile data. We can send money to them through sundry shops around the corner.
That’s where we see the value of of having an MAS-regulated business going out to other regions, bringing along our processes, technology, compliance and governance so we can create trust among investors.”
This article was contributed by Smartup