2020 Is Our Year: Koinworks

Jakarta. One afternoon on the 35th floor of the Cyber 2 Tower building in South Jakarta's busy business district, dozens of Lunaria Annua Teknologi engineers gathered in a brand new amphitheater.

Among them were some new recruits to bolster Lunaria's capability to make quick iteration for the tech company's peer-to-peer lending service. 

Lunaria, more commonly known by its trading name KoinWorks, has been in a spending spree in the past few months after securing fresh funding last year. The company expanded its floor space at Cyber 2 Tower and almost tripled its workforce. 

"We have had many new recruits," Benedicto Haryono, Koinworks' cofounder, told the Jakarta Globe in a recent interview.

"In 2018, there were only 70-80 of us. Now, we have around 200 people," he said.

Behind the rapid expansion was the desire to reach a significant milestone this year: turning KoinWorks into a profitable company by expanding its lending by threefold. 

"We see 2020 as our growth year," Benedicto said. 

"We have closed our Series B funding, which is for scaling up. We want to grow threefold this year and achieve profitability," Benedicto said. 

Venture capital firms EV Growth and Quona Capital led KoinWorks' latest Series B funding in June, injecting a total of $12 million into the company. Earlier backers like Mandiri Capital Indonesia, Convergence Ventures, Gunung Sewu and Beeblebrox also participated in the funding round. 

While the investors are no stranger to seeing startups they invest in losing money for the first few years, Benedicto said he still felt pressure to turn the company he co-founded with Willy Arifin in 2016 into a profitable one as soon as possible. 

"At the end of the day, we are a financial company, not e-commerce," Benedicto said.

"We can't afford to be in the red for too long. We need to become sustainable faster. Or else, how can people, who borrow or lend their money through us, trust us as a company?" 

"The guidance from the OJK [Financial Services Authority] is to push toward profitability. Also, the industry is in the mood to ensure that we achieve sustainability as a financial technology company."

Back in Black

KoinWorks allows individual lenders, often strangers to each other, to pool money and channel it as loans to projects or businesses run by the borrowers. 

KoinWorks curate the projects or businesses, evaluating their risks and ensuring minimal chance of a loan default. 

From the start, KoinWorks employs a complex algorithm to evaluate these businesses and their probability to default on loans. So far the system has worked, with bad loans hovering below 1 percent, compared to the average rate of bad loans in banks of 2.5 percent last year. 

KoinWorks can offer lower interests to borrowers compared to banks' non-collateral loans, and for lenders a return higher than the time deposit interest rate. 

And for all its trouble, Koinworks takes a 3 percent cut. 

Benedicto said he was confident KoinWorks could end this year in the black.

To achieve the goal, the company has prepared a strategy to triple loan disbursement on its platform from Rp 650 million ($47,500) per month last year to Rp 3 trillion per month.

"This year we will be doing more product improvement, amalgamation, automation and multi-product integration on our platform," Benedicto said. 

KoinWorks now has around 400,000 users with lenders outnumbering borrowers by 6 to 1, Benedicto said. But the platform still lacks lenders to meet growing demand from the borrowers.

Today, an average borrower takes on a Rp 150 million loan on the platform each time. Meanwhile, a user can deposit just Rp 100,000, the least amount required by KoinWorks, to start becoming a lender on the platform. 

The company will soon tweak the platform to allow a borrower to refer a lender and vice versa. At the moment, a lender can only endorse a fellow lender, Benedicto said.

"The ultimate goal is to boost user interaction," he said. 

Immature Market

KoinWorks is one of a few fintech companies that have made inroads in Indonesia's peer-to-peer lending industry. They target borrowers who would otherwise go to loan sharks because they do not have the collateral to borrow from banks. 

Outstanding loans at peer-to-peer lending companies were up 160 percent last year, according to data from 164 fintech companies registered with the OJK. In comparison, bank loans only grew by 5 percent. 

But the total outstanding fintech loans were only a little over Rp 13 trillion in 2019, still tiny compared to outstanding bank loans that were close to Rp 6,000 trillion. 

For Benedicto, that leaves much room for KoinWorks to grow organically.  

"Indonesia is mostly an untapped market for fintech lending companies. It's still an immature market," he said. 

Considering the number of potential borrowers in Indonesia, it would also be improbable for a single fintech company to dominate the market by employing money-burning strategy like their e-commerce startup counterparts.

"Who has a pocket deep enough to cover such a huge market?" Benedicto said. 

"Also, who would be able to take on 100 percent of [the market] risk? Many would just want to pick the risk and reward that they're comfortable with," he said.