Fintech-driven lending to alleviate SME financing gap
Fintech-driven lending to alleviate SME financing gap
Vietnamese small- and medium-sized enterprises now have a new option for working capital loans, driven by a partnership between banks and fintech companies. Dr Sian Wee Tan and Vihang Patel, cofounders of Singaporean fintech firm Finaxar, which just launched its Vietnam subsidiary Finaxar VN LLC, talked to VIR’s Nam Phuong about this new lending model and why it is different from other offers in the Vietnamese financial market.
How can fintech help small- and medium-sized enterprises (SMEs) to gain easier access to capital?
Technology can fundamentally change the way SME financing is done in Vietnam. With fintech, for example, the entire lending process is online and connected to other platforms such as e-commerce websites, making SME financing quicker and more convenient. The whole process is usually done within 48 hours.
It also changes the kind of capital that SMEs can borrow. One of the key challenges that these companies often face is finding the right source of money, besides the traditional form of collaterised lending. This is especially true for new SMEs that are less than three years old. Taking out bank loans means that SMEs still need to pay back money and interest even during the quiet business seasons that generate lower revenue.
New technology can solve these problems by leveraging data, providing these SMEs with working capital solutions that are based on invoices and not collaterals. These loans, which tend to cover three to six months, are usually shorter than traditional bank borrowings that may last two or three years.
Data also helps with the risk management process. Technology enables lenders to accurately access risks, which otherwise might be difficult for them due to the inaccessibility of risk-related data. Fintech can integrate well into the banks’ systems, helping lenders comply with current regulations and save money from building new ones. Finaxar's goal is to fundamentally change the way small business financing is done.
Vietnam already has a number of consumer finance firms that can offer small unsecured loans. How is Finaxar different from them or from venture capitalists?
It’s important to clarify that we’re not a peer-to-peer lending or crowd-funding platform, but a direct lender with a strong technology core. We focus on providing working capital for SMEs and not consumer loans like most consumer finance firms currently do in Vietnam.
Consumer finance tends to be very transactional and a one-off occurrence, while working capital solutions are longer-term and based on an ongoing relationship between lenders and SMEs. In other words, while consumer finance “takes away” the income of the borrower, working capital providers help the borrower gain better income.
It’s somewhat the opposite when it comes to venture capitalists (VCs), who invest money and other capabilities in startups and SMEs for a far longer term. Working capital focuses on a shorter term – which places us somewhere between consumer finance and VCs. VC money is very expensive because investors require strong growth rates, while working capital debt providers like us don’t have as high expectation of growth.
That said, we believe that working capital based on fintech can complement VC capital for SMEs very well. In fact, a lot of our borrowers are backed by VCs.
What are your growth plans in Vietnam? Why do you choose to partner with a bank?
Before launching here, we took a long time to understand the market, build partnerships with banks, and learn how to build a strong credit model for Vietnam’s SMEs.
For the first year, we’re not looking for explosive growth but instead will take prudent steps to establish our name in the market and avoid challenges that existing firms usually face. We want to be an inclusive lender that caters to all SMEs, but for starters, we’ll focus on new-age and business-to-business SMEs, in the services and e-commerce sectors.
We hope to expand to firms in logistics, retail, and manufacturing in the next one or two years. Our goal for the first year is to provide working capital of less than VND3 billion ($130,434), which we believe can meet the needs of 30 or 40 per cent of Vietnam’s SMEs.
We pride ourselves on being an SME-focused direct lender, which allows us to build systems and innovations that are tailored to this exciting segment, which takes up 97 per cent of Vietnam’s economy. We combine fintech, the international expertise of our team, and our local partnership with Indovina Bank to serve Vietnam's SMEs.
