Indonesia’s fintech microfinance marketplace Amartha aims to bridge funding gap for MSMEs
It is building a marketplace for microloans by working directly with rural banks and financial institutions
INDONESIA’s microfinance tech company Amartha is hoping to tackle the country’s under-funded micro, small and medium-sized enterprises (MSMEs) by tying up with rural banks and financial institutions to lower risks and manage loan portfolios.
“We are building a funding gateway model that connects banks and MSMEs. Today, we serve more than 30 banks across Indonesia,” Andi Taufan, the 37-year-old chief executive officer and founder of Amartha, told The Business Times.
Founded in 2010 as a microfinance institution, Amartha transitioned to a technology company in 2016. From an initial base of just 7,000 borrowers, Amartha now serves more than two million borrowers and continues to grow.
“We can claim to be the fastest-growing non-financial institution in Asean,” said Taufan, who previously served as a special staff member for Indonesian President Joko Widodo.
MSMEs are the backbone of the Indonesian economy, contributing a substantial 61 per cent to the nation’s gross domestic product, as highlighted recently by Widodo.
This vital sector also accounts for 97 per cent of job opportunities in the country. Despite their significant role, only 21 per cent of the 60 million MSMEs have access to credit, and a mere 7 per cent are integrated into global supply chains, said the Ministry of Micro, Small and Medium Enterprises.
Having raised more than US$200 million over the past decade, Amartha is building a marketplace for microloans by working directly with rural banks and financial institutions.
“Our business model is evolving. We started with building a retail marketplace but we found the cost of acquisition was very high, so we focused on financial institutions instead,” said Taufan.
Amartha disburses funds to banks. By using technology, it manages the banks portfolios to lower non-performing loans and reduce risks. he explained.
The company’s growth is based on offering payment services and a proprietary credit scoring system that is married with an integrated technology platform to help digitise Indonesia’s grassroot communities, especially those outside Java.
Amartha has been profitable since 2016. It earns a platform fee as well as a percentage of the interest that banks charge borrowers. Taufan noted that 99 per cent of borrowers are women who run small shops and often need working capital.
“Every women entrepreneur who wants to borrow must form a community, and we leverage AI (artificial intelligence) to optimise lending and collection,” he said, adding: “We have 9,000 employees on the ground, of whom 60 per cent are women who build relationships and acquire borrowers.”
Amartha provides financial literacy training and also helps the MSMEs market their products on e-commerce platforms. “We connect the entrepreneurs across the country so they can trade with each other.”
But working capital is not all they need.
One of the main challenges for MSMEs is scaling their businesses. Many do not have the necessary business skills, connections and know-how to build their business from being a micro enterprise to become a medium sized enterprise.
“We have learnt that simply providing working capital is not enough,” said Taufan. “We need to build industries if we want to raise GDP in the provinces.”
Taufan noted Amartha has enabled 67,000 MSMEs to advance to small enterprises, as measured by the company’s scoring system. This system monitors new jobs created, monthly cash flows and the issuance of monthly pay cheques. “On every loan we provide, we create new jobs; and so far we have helped to create more than 200,000 jobs for informal workers,” he added.
Amartha is actively seeking to raise additional funds. The company currently has 20 investors, including venture capital firms, banks including UOB Singapore and Bank Mandiri, as well as major corporations such as Telkom Indonesia.
In addition, Amartha partners with the World Bank and the International Finance Corporation to channel environmental, social and governance loans from the US and Europe to Indonesia.
In June, global non-profit Accion announced a US$17.5 million equity investment in Amartha from the Accion Digital Transformation Fund. The financing will help fulfil Amartha’s vision of building a platform to deliver a full suite of financial services and products to women-led small businesses in Indonesia.
“We aspire to grow more than tenfold over the next few years, and are actively seeking new partners to collaborate with,” Taufan added.
