As Indonesian authorities work to raise standards in the country’s booming peer-to-peer lending industry, it is inevitable that smaller and weaker players will be weeded out. It’s a surprise, therefore, that the biggest troubles have appeared in one of the sector’s biggest players: Investree Group.
The company’s co-founder and CEO, Adrian Gunadi, has reportedly tendered his resignation. He also faces allegations of misconduct, according to a report from Deal Street Asia.
Investree is facing a liquidity crunch and a diplomatic crisis with its investors and partners at a time when its main competitors are thriving. Indeed, fintech P2P in Indonesia is profitable – but not at Investree.
Following new rules issued by Otoritas Jasa Keuangan (OJK), Indonesia’s securities regulator, fintech lending platforms began to report net profits in January 2023. By summer last year, the 102 registered P2P fintechs had recorded a collective net profit of $29 million.
Investree’s biggest peer competitors appear to be healthy, including Koinworks and Modalku (the local arm of Funding Societies), as well as buy-now pay-later companies such as Kredivo.
Fortunately, Investree’s fate will not impact overall financial stability in Indonesia. Although these fintechs are valuable channels to banks’ lending arms, regulations by both OJK and Bank Indonesia, the central bank, limit banks’ exposures to P2P borrowers.
Investree is one of Indonesia’s oldest P2P marketplaces, founded in 2015 in Singapore (its Indonesia legal entity is named Investree Radhika Jaya).
It has partnerships with many banks. These include commercial heavyweights such as Bank Mandiri and Bank Danamon Indonesia, large state-owned lenders such as Bank Rakyat Indonesia, and digital-focused banks such as Bank Jago.
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Utilizing these balance sheets, Investree says it has distributed Rp14 trillion ($888 million) in loans to MSMEs (including small businesses in Philippines and Thailand). That’s less than the Rp37 trillion of loans distributed across Modalku’s Indonesia platform, but about the same as the volumes on Koinworks. (Those figures represent all accumulated loans.)
Investree’s Singapore parent also owns a stake in an Indonesian bank, Bank Amar, whose license was refitted as a fully digital bank in 2014 by its owner, Singapore conglomerate Tolaram Group. Investree acquired stakes in Bank Amar in stages, culminating in an 18.4 percent stake achieved in 2022.
For both Bank Amar and Investree, the logic was simple: combine forces to build a digital bank for micro-, small- and medium-sized enterprise (MSMEs).
Investree got its start by providing business solutions such as e-invoicing and inventory management. But it soon evolved to operating a lending marketplace, enabling banks to serve loans to a customer base they would not touch without a digital intermediary.
Together, Bank Amar and Investree planned to become the largest financial provider to SMES in Indonesia.
For reasons not yet known, but probably forced into the open by OJK’s various reforms, Investree experienced a rise in non-performing loans that appears to have appeared on its books only late last year.
Because these defaults are transferred to the original lender, Investree has burned some of its banking relationships, and several lenders have filed court proceedings against Investree.
The fintech is alienating investors too. Last October it completed a massive financing, one of the biggest in Southeast Asia, a Euro220 million ($231 million) Series D funding round.
One of the strategic backers was JTA International Holdings, a Qatar-based investment group. The two parties agreed to establish a joint venture in Doha, to be named JTA Investree Data Consultancy.
There is little public information about JTA. Its CEO and co-founder is Amir Ali Salemi and the business invests in a variety of sectors. It resembles Temasek, the Singapore government’s investment holding company, but there is no information online about who owns JTA.
To whatever degree JTA is either a quasi-sovereign wealth fund or merely the vehicle of well-connected business interests, it had put money into Investree with the aim of bringing Investree’s technology (such as its scoring model) and business nous to the Middle East, and beyond.
JTA may hold Investree’s fate in its hands, but there are other investors involved. Earlier funding rounds included Japan’s MUFG Innovation Partners and BRI Ventures (a unit of Bank Rakyat Indonesia), as well as Switzerland’s ResponsAbility Investments.
However it’s the Qataris who has reportedly not yet wired the money from the Series D round to Investree, thus exacerbating the fintech’s liquidity crunch. Does JTA stick with its commitment, and essentially rescue the other shareholders? Or does JTA decide it was lied to, and walk away?
Their decision will consider whether Investree’s troubles are fleeting and can be papered over with cash – or if investors would just be throwing good money after bad. Perhaps they will insist on new terms, such as Investree cutting costs, selling some of its Bank Amar stake, or closing overseas businesses.
Whatever the outcome, the Qataris cannot be pleased with the rise in Investree’s non-performing loans.
This is the crux of the fintech’s problem.
Indonesia’s regulators measure loans based on the portion of borrowers who repay within 90 days of maturity. The industry average is 97.18 percent as of September 2023. Investree’s success rate seemed in line until the start of 2024, when it fell to 83 percent and is still falling. Its non-performing loans now make up 16 percent of its book, says Angus Mackintosh of CrossASEAN Research, writing on SmartKarma.
How much of this is circumstantial and how much is due to bad risk management remains to be seen. But the regulator has not been prepared to wait to find out: OJK has already imposed sanctions on Investree due to it breaching an allowed NPL level of 5 percent.
JTA will be angry not just because its new investment turns out to be in financial trouble, but because its investment was based on adopting Investree’s credit-scoring software, to be used in the Doha JV.
But with an NPL rate of 16 percent, JTA executives may be wondering if they have backed good software or just good storytelling.
OJK cleans house
The suddenness of Investree’s liquidity and lending problems are probably less to do with a change in business climate, and more to do with a change in the regulatory requirements for fintechs in Indonesia.
OJK is determined to clean up a sector that saw explosive growth. There were 51 active fintech businesses in Indonesia in 2011, mostly in the payments space, but that number grew to 334 in 2022, including 164 P2P lenders. By end 2022, says Boston Consulting Group, there were more than 30 million active P2P borrower accounts, who had received a total of $17 billion of loans.
The OKJ has since capped interest rates and insisted on ceilings for bad loans. It has also taken steps against illegal operators, loose data practices, and overzealous loan collection. There are now 102 registered P2P fintechs, and consolidation is very likely. OJK wants fewer but healthier fintechs, which points to a bright future for fintech-based lending.
The surprise isn’t that P2P fintechs are dropping out; the surprise is that the casualties include an industry leader.
This affair should also put paid to lazy assumptions about the efficacy of financial inclusion, when measured by the volume of loans handed out to small businesses. What counts is when borrowers return the money on time.
Meanwhile, co-founder and CEO Gunadi has yet to publicly announce his resignation. Prior to setting up Investree in 2015, he was a senior transaction banker at Citi and Standard Chartered, in Jakarta and in Dubai. He also ran sharia banking at Permata Bank and retail banking at Bank Muamalat Indonesia.