Malaysia-based fintech player Boost Credit doubles down on Indonesia’s MSME market

IT is no secret that Indonesia’s vast digital economy offers all sorts of opportunities for regional start-ups, but finding the right area to delve into can be challenging.

Malaysia-based fintech player Boost Credit believes it has a winning hand, as it targets Indonesia’s over 65 million micro, small and medium-sized enterprises (MSMEs) by offering short-term financing to small-scale retailers and distributors.

Having started off by financing telco retailers and distributors, Boost — the fintech arm of Malaysia telco Axiata — recently expanded its customer base to include the FMCG (fast moving consumer goods) supply chain during the Covid-19 pandemic.

“We found this white space in Indonesia and focused on the businesses in the outer islands such as Sulawesi, Sumatra and Bali,” group chief executive officer Sheyantha Abeykoon, told The Business Times in a recent interview. “Indonesia has been a successful market for us as we have grown 5 times over the past 12 months.”

While investors have been focused on payment gateways that target the country’s consumer sector, P2P platforms have also been growing rapidly.

According to the Indonesia Financial Services Authority, there were 56 licensed P2P lenders in Indonesia as at end-2021, with another 90 waiting for their registration letters to be issued.

Given Indonesia’s low loan disbursement per GDP ratio and the large unbanked market, there is plenty of room for growth for P2P lenders. According to industry players, the credit gap in Indonesia is anywhere between US$68 billion and US$165 billion.

Boost recently announced that its maiden tranche of Senior Class A Medium Term Notes had been rated A1 by Malaysian-based RAM Rating Services.

Launched in 2017, Boost acquired a 68.75 per cent stake in Indonesian telco supply chain financing company PT Creative Mobile Adventure in 2012.

Over the past 3 years, Boost has disbursed more than 4.1 trillion rupiah (S$400 million) to SMEs in both Malaysia and Indonesia.

In Indonesia, the start-up disburses upwards of 250 billion rupiah per month, making it one of the largest P2P operations in South-east Asia’s largest economy. The average size of the loans is around US$5,000. Using data science and credit scores, Boost has managed to keep non-performing loans to under 1 per cent of the total loans disbursed.

“These loans are usually 15 to 30 days (in length) and linked to the supply chain, so they are used for productive purposes,” said Abeykoon.

According to him, the firm got a number of decisions right at the beginning, which helped to propel its growth in Indonesia.

“First, we assembled a strong local team comprising data scientists, technology experts and marketing professionals,” he said. “We also decided early on what we wanted to do, and we clearly did not want to get into the consumer space.”

Secondly, he focused on going digital and supply chain financing by working with both distributors and retailers. “Our model was different in that we worked through an ecosystem where we provided credit to the retailer in conjunction with the distributor.”

Having achieved fairly quick success, Abeykoon is now focused on scaling up his operations and geographical spread by introducing new lending products.

“Many businesses require merchant solutions such as delivery software, invoicing and inventory management,” he noted. “We are a digital-first company and our growth has come through providing digital solutions.”

Looking ahead, Abeykoon is mindful that greater challenges lie in wait. Indonesia is a huge but highly fragmented market, which means having local knowledge is critical, he said. Finding suitable local partners and onboarding MSMEs on a digital platform require patience and resources, he added.

“Given the size of the market, alternate credit lenders can capture between 15 per cent and 20 per cent of the market but the key is harnessing technology and having a strong local presence.”