In most emerging markets, mom-and-pop shops, smallholder farmers, blue-collar workers, and other small businesses are massive contributors to local economies. In Indonesia, micro, small, and medium enterprises (MSMEs) provide employment for 97 percent of the workforce, with more than 64 million MSMEs contributing 61 percent of the country’s GDP. But even so, all face challenges in accessing formal financial products. While tremendous progress has been made in improving the reach of financial services, especially with the emergence of digital financial services and expansion of services by microfinance institutions, the credit gap remains massive. This is why we at Accion Venture Lab are excited about the potential of embedded finance, where platforms can offer their customers financial services on top of their core product offering. However, while potentially powerful in unlocking capital to those in need, building credit and other products, especially at scale, is challenging.

This is why we are excited to support Finfra. Finfra, our latest investment in Indonesia, aims to be a partner to these platforms in developing, launching, and scaling their credit products. Finfra provides various non-fintech startups the expertise, knowledge, and regulatory framework to help them create and provide meaningful financial products for their customers.

The challenge of lending for platforms, especially at scale

Recently, we have seen the emergence of platforms digitizing traditional sectors such as agriculture, construction, manufacturing, and others. As these platforms link buyers and sellers directly and digitize transactions, they are in prime position to provide financial services to their customers — a proposition that makes sense on both sides. The customers, normally producers at the end of the supply chain, are underserved MSMEs that will gain access to much-needed capital. On the other hand, the financial services give platforms improved customer retention, larger basket sizes, higher gross merchandise value, and additional revenue, in most cases. But a financial product is not something that can just be added on like any other feature. The lending business requires a deep understanding of the components of credit, and it is normally not the expertise of the founding team that is building for a specific value chain.

Lending gets even more difficult at scale. Initially, it can be straightforward to select the best customers, provide a credit line, and build an initial loan book. However, as you expand the borrower base and grow the loan book, new challenges and added risks become apparent. Given the leverage involved, a poorly performing lending business can put not just the financial services business but the entire platform at risk. Finfra aims to help platforms navigate these challenges.

End-to-end solution for platforms to enable lending at scale

Finfra provides platforms with a full-stack solution to help them develop and scale their credit products. The company supports the platform with the necessary end-to-end infrastructure, including doing a deeper dive on the business plan for the embedded financial product, supporting the underwriting model, assisting with the KYC of borrowers, and providing access to debt capital providers. Instead of platforms needing to build everything from scratch, hire large teams, and spend valuable resources, they can instead work with Finfra, who will not only provide the rails and required solutions but also be a valuable thought partner throughout the process.

Finfra’s services can be described in multiple ways — infrastructure fintech, lending-as-a-service, embedded finance enabler, outsourced credit/risk team — but at the very core, the company wants to be the value-additive partner for the platforms as they aim to serve their own end users with financial products in a sustainable and scalable way. As a one-stop shop, the company has a strong value proposition for platforms that see lending or other financial products as core to their operations and long-term plans for their end users.

Founders with a deep understanding of credit and lending industry in Indonesia

Markus Prommik and Reinis Simanovskis launched Finfra in April 2022 after seeing the challenges that large B2B marketplaces and platforms had in launching credit products. They saw an opportunity to share the knowledge that they had gathered after previously running Danabijak, a consumer financing company. After coming to understand that the pure direct-to-consumer lending space had become saturated and more challenging, especially with regulatory changes, Markus and Reinis pivoted to focusing on the needs of platforms.

From their six years at Danabijak, Markus and Reinis understand credit cycles and what the impact of a macro shock like the pandemic can have on portfolio quality, and they know what metrics need to be prioritized to build a healthy loan book. Both Markus and Reinis have a wealth of experience in the credit space and are hungry to continue building tech-enabled financial services and products.

Enabling credit for Indonesia MSMEs and consumers

While still early, we are excited about Finfra’s role in expanding the reach of financial services in Indonesia by being a key partner to platforms. The company already has several well-known B2B startups onboarded, including GoCement, Juragan Materials, Kentara, and others. On the lender side, Finfra also recently signed an agreement with Tyme Group to be their exclusive partner as Tyme expands their global work into Indonesia. This partnership with Tyme will show that Finfra is able to add value on both sides, to a lender just as they do a platform, and be a true link to enabling embedded finance in Indonesia.

The credit gap remains massive in Indonesia, and we believe embedded finance will play a role and complement stand-alone financial institutions in bringing critical financial services to underserved MSMEs. We look forward to continuing to work with Markus, Reinis, the entire Finfra team, our co-investors, and other stakeholders, in empowering platforms as they provide their users with much-needed financial services.