In Singapore today, the word “fintech” is no longer just a fancy buzzword. The acceleration of fintech innovation in the country in recent years has reaped tangible rewards; helping to democratise access to financial services in the country.
For example. online robo-advisor services, such as the one built by StashAway, allow individuals to build investment portfolios online — which is easier and charge lower rates than traditional brokerages.
Businesses, on the other hand, can access alternative funding options through platforms such as Crowdo, which provides P2P and equity crowdfunding services. There is also a slew of other online P2P lending services such as Moolah Sense and Capital Springboard, which have set up base in Singapore.
Part of the reason for this is because the Republic has a strong, progressive and business-friendly financial regulatory framework. For example, the Monetary Authority of Singapore (MAS) has recently opened up financing options for SMEs.
Additionally, it has awarded Capital Market Licenses (CMS) to several P2P lending platforms so that SMEs can legally gain access to this new category of loans.
One of the recipients of the CMS is Singapore-based P2P lending platform Crowd Genie. Like many of its ilk, Crowd Genie was founded by entrepreneurs who saw that certain traditional financial services were rigid and could not serve certain profiles of clients.
Thus, Crowd Genie’s founding goal was to first provide capital access to SMEs which could not meet the requirements of traditional financial institutions.
“We are a complimentary to the traditional banks and not competing against them,” says Akshay Mehra, co-founder of Crowd Genie. “What Crowd Genie has consciously chosen is to target the underbanked population of SMEs in Singapore.”
A hybrid human and machine-based credit risk assessment
In place of just traditional financial metrics, Mehra and his co-director Bikash Saha, who has experience in a credit rating agency and retail banking, leverage a hybrid of machine-based learning algorithms combined with hands-on groundwork to assess the credit risk profile of potential borrowers.
This is to ensure that the businesses are legitimate and are not running into the red.
“We take a lot of the banks’ assessments and build up our own algorithm, along with a lot of financial criteria. We also do on-site surveys by sending someone to go and ask questions, not only to the person in charge but also to the team in the company,” says Saha.
“We also do a very deep assessment on the qualitative of the company; the kind of customer profile and the kind of credit profile. We even do a fair assessment of the industry itself,” he adds.
Part of the reason Crowd Genie is still heavily reliant on human input is that its machine-learning algorithm is currently a work-in-progress. Accurate data analytics can only be achieved once there are enough actionable data points.
‘One or two data points will not suffice, as it needs at least hundreds. Every case that we do will be added to that database.”
Crowd Genie also conducts six-monthly reviews to determine whether its algorithm needs to be re-rated based on new data. Mehra says the next review of the algorithm will take place at the end of the year, when Crowd Genie has accumulated about 300 – 400 cases.
The ideal profiles
So who exactly are the underbanked SMEs that banks would turn away but meet Crowd Genie’s criteria?
There are many SMEs who have banking relationships but are unable to get loans because of reasons such as exhaustion of credit limit or that they fall short of regulatory requirements from banks, says Mehra.
“For example, someone has a loan from a bank, but he doesn’t have the ability to extend his loan, and he needs to pay his vendor in the next 45 days. That means he only needs a loan for three months and will not need us after that. That’s the kind of person we look for,” elaborates Mehra.
Ideally, the profile of borrowers would be SMEs turning over about S$1 million (US$731,000) to S$5 million (US$3.66 million) in revenue yearly, and would have had a bank loan and a corporate bank account; they would also have to be in operation for about two to four years, and need a short-term funding gap that the banks are not able to extend.
“Another example is those with banking relationships, but the banks do not trust that he can pay them back because they feel that the cash flow may not be able to cover it. So we are here to help them build credit history. There was a case from a company that took our loan for six months to build credit credibility so that he could get a loan from the bank after that,” says Mehra
“In other words, we are here to bridge the gap,” emphasises Mehra.
Currently, institutional investors are qualified to be lenders on Crowd Genie; retail investors are barred. Mehra ensures that Crowd Genie provides full transparency to its investors.
“For us, the important thing from the investor standpoint is that we are the ones who give a lot of information of a borrower, which publicly may not be available,” says Mehra.
“So if the lender has questions on the borrower, i.e., who they are and what they do, our platform has a Q&A section where any lender can ask us any questions.”
These questions range from interest rates, industry analysis, operational period, and other details that are not necessarily on a P&L balance sheet.
Scaling the platform and new features
Founded only in January last year, Mehra is cautiously optimistic about Crowd Genie’s growth plans. He plans to focus on just the Singapore market for the time being; most other regional markets do not offer the same financial stability.
“The scalability of the platform depends on how advanced the technology is, as well as how data-rich the environment we are in. So even though the market is big, it doesn’t mean that our business model can work there,” says Mehra.
“For instance, we are cautious to expand in Indonesia and India, as these two markets are not as robust as Singapore, unlike Malaysia and Australia. We still have questions on whether the credit score ratings are captured by the bureaus, whether the bankruptcy laws are strong enough to protect us.”
With regards to new financing options, Crowd Genie is exploring setting up provision funds. These funds are essentially emergency funds that repay lenders when their borrowers default on their loans. Crowd Gene is also looking at boosting lender’s safety but Mehra does not disclose any details.
“What we see now is that players are doing two types of expansions; going deeper into retail side, or expanding to other countries. We may want to do the expansion, but we want to focus on building the trust and safety for the lenders first, because once that happens the repeat business will come in, which also grows the market from its own right,” says Mehra.
In conclusion, Crowd Genie wants to fine tune its solution first and optimise it for its Singapore clients before branching into new markets. Eventually, it wants to become a hub for private capital — and not just for lending.
“And that could include a lot of different flavours; lending, equity, line of credit, invoice financing, crowd funding, etcetera. But all of these are driven by the fact that we want to target the underbanked population…we feel that the underbanked have all the right credentials to be given loans or have some kind of financial products, but are still underserved,” says Mehra.
Image Credit: Crowd Genie