For the common man, borrowing money from a public lender/bank in Asia is still a harrowing experience. While the emergence of fintech has transformed the banking industry, it is a matter of debate whether the fruits of this innovation have reached the common man. If you look at countries like India, Indonesia, Pakistan, Bangladesh, etc., banks still rely on traditional paper-based methods to process loan applications. This is not just time-consuming, but costly, too. The east Asian country of Mongolia is no different. "In Mongolia, lending is mostly a slow and time-consuming process, and the loan seeker is required to bring a bundle of documents to prove his/her identity, income, and employment status. Plus, there are human biases in issuing loans," says Anar Chinbaatar, a fintech entrepreneur in the country. "Micro loan seekers are not spared from this inefficient process, either." But where there is a problem, there is always a solution. The more such problems exist, the more opportunities are available for the rise of fintech. Chinbaatar and his startup LendMN are doing exactly this.

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"LendMN is a smartphone-based instant collateral-free micro-lending service powered by artificial intelligence (AI). We use non-traditional data sources, along with traditional data, to identify the customers' credit risk instantaneously and issues loan within less than five minutes of signing up," claims Chinbaatar. "We offer 10 times faster, more convenient and cheaper micro-loans, compared to other competitors, which follow mostly traditional business models." A subsidiary of Singapore-registered fintech firm AND Global, LendMN was started by a group of mathematicians, finance experts, and tech entrepreneurs  -- who have previously founded and exited multiple startups. LendMN's mission is to make financing accessible and inclusive to the under-banked, not just in Mongolia but also across Asia. "Our mission is to save people from loan sharks, who mostly charge seven to 10 per cent interests rates per week. Obviously,  this doesn't help the economy, nor does it help the country. If anything, it has made the matters worse," observes Chinbaatar. LendMN, which lends from its own cash reserve, has been piloting the micro-lending service in Mongolia since January 2017. According to Chinbaatar, not only has the service proved to be useful for underbanked customers, its business model is profitable with the revenues that led the firm to a cash positive state in less than 11 months of launching the service.

The target customers

With its instant-loan app, LendMN targets people who are unable to get similar services from traditional financial institutions -- either because of high requirement and burdensome processes, or high costs in terms of time and money. The amount of lending can vary from US$20 to US$400 for a period of up to 30 days. The firm charges only a nominal service fee. Since there are no instalments, there is no interest charged from customers. Most of LendMN's customers are females with a family size of three and who have a regular income. Chinbaatar says that loan default has not been a major issue for the company. "We tackle loan defaults with two approaches. Firstly, we screen customers before they onboard. Our AI-based algorithm assesses customers both willingness to repay on time and capability to repay, based on the data that customer provides, as well the data from third-party official and public sources. Once we filter out the bad customers at the gate, we can tackle fewer occasions of late payments or defaults. Thanks to our proprietary AI-based technology that helped us achieve 98.3 per cent repayment rate on time." [caption id="attachment_194612" align="aligncenter" width="689"]The Chinbataar team The LendMN team[/caption] LendMN also uses operational efficiency to collect money in time. This includes human interaction via call centres and collection agents. There is a funnel of actions that starts from “incentivising customers to pay on time” to “penalising by explaining the consequences”. Incentives include providing larger loans with less fee for their next loans. "We have over 130,000 app downloads with 30,000 active borrowers. And our monthly growth is 40 to 70 per cent. We have issued loans worth over US$11 million so far," Chinbaatar boasts.

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LendMN now wants to replicate its micro-lending technology in the Southeast Asian markets, starting with the Philippines.

IPO

As part of its expansion plans, LendMN is now in the market to raise funding. It launched an initial public offering (IPO) on the Mongolian Stock Exchange on Tuesday to raise US$2 million. Asked why LendMN is raising money via IPO rather than via VC route, Chinbaatar said. "There are multiple benefits we see in pursuing IPO. First of all, the benefits of the project must be shared with its customers. Secondly, in terms of the company, the governance must be strengthened with the introduction of the best practices of a public company," he shares. "Thirdly, all operational aspects of the company must be transparent as there are some doubts or misunderstanding about new technology like Machine Learning- based lending. Additionally, the local company valuation is now publicly proven and accepted." A total of 25 per cent shares are up for grabs, of which 12.5 per cent are for the public and other half for strategic investors. The money will go into fulfilling its "increasing demand for loans". LendMN has already got financial commitments from Seoul-based Rhinos Asset Management and another unnamed company. Given the amount of interest it has received, the startup expects oversubscription of its IPO. "Our IPO roadshow attendance by professional brokerage companies and public individual investors were unseen in the 12-year history of the Mongolian Stock Exchange. The interest and crowd almost tripled the size of any other regular IPO roadshow in Mongolia," he says. According to LendMN, in spite of being young, the Mongolian startup ecosystem has been growing at a rapid rate. There are 400-plus startups, most of which are into fintech, e-commerce and consumer products.  The participation of the government, corporates, NGOs and educational institutes are also helping the ecosystem grow. "There are many similarities in the consumer demographics between Mongolia and Southeast Asia such as a highly connected, mobile-first young population. Because of the small population and high urbanisation, Mongolia has an opportunity to shortcut the growth of many of the infrastructure dependent industries. Fintech is a great example as almost all the commercial banks are now aggressively looking into new technologies and startups to innovate their offerings," he signs off.