Indonesia Expat sat down with Thierry Sanders, CEO of Mekar, and talked about peer-to-peer lending in Indonesia:
Tell us about your background in financing.
It was around the year 2000, I was working with a friend in Oxford who set up the first company to trade carbon credits. Basically we would find companies that reduce CO2 emissions and we would help finance those companies. We had around 600 companies that we were helping to get financed, all from developing countries, and there I saw that financiers were only interested in businesses that needed a lot of money. The ones that needed relatively little money, even though the returns were higher and the risks were lower, would be very hard to finance. I thought this was strange and I realised that this was a big problem. Having lived in developing countries my whole youth, I knew that most companies are small in these parts of the world, and that a lot of jobs in developing countries are being created with these small companies. So I decided, in 2004, to dedicate my career to try and solve this problem. I call this problem, “The Missing Middle”.
Can you explain what “The Missing Middle” means?
What this means is, the really small companies usually get financed by the owners themselves and their families, and the big companies get financed by banks and other investors. Then there’s this missing finance for small or “middle” companies that are too big to be financed by families and too small to be financed by formal financial institutions. Yet this is where most jobs are created in developing countries. So imagine what we could do if we could get a bit more finance for these small businesses?
What did you do to help solve this problem?
I decided to create a Global Business Plan competition using the internet, to get businesses from developing countries to submit their ideas and get investors to register. This was way before the time of crowdfunding. We just wanted to match entrepreneurs and start-ups with investors. I started a foundation called the Business In Development Network and I managed to get 60,000 start-ups to register on the platform over a period of five years, and we managed to get investors to finance those businesses up to the tune of US$250 million. It was a huge success and it created a lot of jobs in these countries.
I was then invited to the G20 summit as one of the global leaders in getting small businesses financed. Barack Obama was there giving awards to the best in the world. He gave me US$1 million to promote my activities. Then I got an invitation from the White House to help the Obama administration to set this up for Muslim countries. There were around 30 advisors to the Obama administration to help entrepreneurship in Muslim-majority countries. Putera Sampoerna was one of those advisors too. He and I started talking and soon noticed we shared this passion for supporting small businesses. He was thrilled at what I was doing and he invited me to come to Indonesia. At the end of 2014 I decided to come here, he asked me to help him grow one of his companies called Mekar.
How did you get started at Mekar?
Putera Sampoerna told me about Mekar, the first peer-to-peer lending platform in Indonesia. Peer-to-peer means that an investor can finance a borrower directly through the internet. It launched in 2012 but the company wasn’t doing very well. I suggested to reorganise the company with a better business model. In the beginning of 2016 we started lending online directly to small businesses in Greater Jakarta. We initially financed 800 small businesses, and now we’ve just finished financing our 25,000th business.
How is Mekar doing now?
We’ve shifted our activities and are now mainly financing women’s businesses. Lending to women is safer in Indonesia. Statistics show that five percent of male borrowers, on average, will not pay back. With our female borrowers, it’s only 0.5 percent. Which is why we chose to focus on women. They also have a harder time getting financed. Now, 95 percent of the businesses we finance are women’s businesses.
Most of the online financing, if you look at our competitors, happens in Jakarta. I decided that we need to do better and go further, we can’t do what everyone else is doing. Now, we finance businesses all the way from Aceh to Papua. We are able to do so by looking for credit cooperatives or Koperasi Simpan Pinjam that have been operating well for the last five to ten years. There are approximately 70,000 credit cooperatives in Indonesia, of which less than 200 are up to our standards. We are currently working with two big credit cooperatives, one of which, Komida, has financed one million women’s businesses. They do the lending and collecting, and organising meetings with the women, and we offer those businesses on our platform for wealthy Indonesians to finance. Through our website, anyone can start financing women all over the country and they can earn 12 percent per year.
What are Mekar’s goals?
Putera Sampoerna and I have agreed to achieve three things. One is to get wealthy people to finance less wealthy entrepreneurial people. We are not interested in financing the trendy tech businesses because there’s enough money going there. We are just looking for small businesses that create jobs. Local businesses that can’t get financing from banks. We are connecting them with financing that they otherwise can’t get.
The types of businesses include fisheries, agriculture, and even warungs, actually half the businesses in the platform are shops or little warungs. Most of them won’t have more than five people working there, so if they get a loan they’ll double their size. It means there’s 100 percent growth, but it’s still small.
The second goal is to create an army of agents across the country that are using our mobile app, like Go-Jek drivers, going into small businesses and ask them what they need to grow. We currently have 2,000 agents across the country that we found through social media. They can download our “MoMaju” app and earn Rp 100,000 if they find a business that really needs financing. When they find the right businesses, we either get the financing for them ourselves or we connect them to other financial institutions. We do a second check of the business to ensure that the prospect is really a good business to put on our platform. We are like plumbers, connecting pipelines between different parts of Indonesia. The next big step is how to get people from Amsterdam or New York to finance a business all the way here in Indonesia.
The third is to set up an Impact Fund. This is a US$30 million dollar fund to invest in larger green and social businesses. They’re still considered as a relatively small businesses but need up to US$ 500,000 in investment. These will be businesses that have a social or environmental impact. For example businesses that can improve education or health in the country, help with recycling, renewable energy or water sanitation, basically anything that improves the quality of life in Indonesia, at a profit.
Can you elaborate more on the Foreign Investment opportunity with Mekar?
For foreign investors the platform allows anyone in the world to finance a woman’s business for about Rp 2 million. The minimum investment to make it worthwhile for foreign investors outside Indonesia is US$3,000. This amount can finance 30 women’s businesses. You can choose a 12, 18 or 24 month investment, earning you respectively 3.5 percent, 4 percent and 4.8 percent flat per year after tax, transfers and currency exchange in your foreign currency.
An expat living here, on the other hand, those who have a local bank account, will earn more, but in Rupiah. Mekar offers investors two options. Investments that repay every month or time deposits of 12, 18 or 24 months. The time deposits earns 11.5, 12, and 12.5 percent per year respectively. For this the minimum investment is Rp 30 million. However, an investment which gets repaid every month offers you 10 percent per year, and offer which is open till June 30th. In July and after the monthly repaid investments will offer 7.75 percent per year starting from investments for as little as Rp 1 million.
There’s no minimum investment limit for a monthly repayment loan. Every month, this loan will be repaid with a 10 percent flat until 30 June 2018, however starting from 1 July 2018 repayment will be at 7.75 percent. With the deposits all the monthly repayments get reinvested into new loans, offering the investor an extra 4.75 percent flat.
With this new program, we also want to invite foreign investors, not just wealthy Indonesians, to help grow small Indonesian businesses. Our website is now accessible in English which explains clearly how to set up a funder account and transfer funds to Mekar.
Why should investors choose Mekar?
We are the only platform that invests mostly in women, as I mentioned earlier 95 percent of the businesses are women’s businesses. We are helping them become financially independent and earn money on their own, and giving them a rare opportunity. We are also the only platform in Indonesia that finances from all over the country. Moreover, any money you invest in our platform will be protected. The money you initially put in is 100 percent guaranteed. The cooperatives that we work with have such big financial buffers and have been operating so well for over ten years that they are able to guarantee the repayment of your investment. Only the earned interest is at risk, but in practice, only 0.5 percent of payments are late, which makes this risk almost insignificant. Those three things make us unique as a peer-to-peer lending platform.
For more information, visit https://mekar.id/