Finfra and Xendit Working on Income-Based Financing Products for MSMEs

The popularity of the MSME financing landscape in Indonesia has encouraged the emergence of various innovations to make access easier. Recently, startups fintech Finfra and Xendit introduced Revenue-Based-Financing (RBF), aka income-based financing, a new alternative financing model for MSMEs.

RBF products offer MSMEs access to credit and flexible payment options. Finfra and Xendit developed an API-enabled bank account system that can be opened in the name of the borrower. RBF allows borrowers to direct all income to a designated account, and a portion is automatically allocated to loan repayment.

This is to avoid the ratio that generally directs 20% of funds into loan payments and keeps the remaining 80% in the borrower's account. Meanwhile, this partnership utilizes the Fintech Fund Account (RDF) feature from Xendit for the process collection automatically.

In his official statement, Xendit Managing Director Mikiko Steven said, "Simplifying and modernizing payments has been at the core of our work since we founded this company. For this reason, it is important for us to partner with companies that focus on Southeast Asia and Southeast Asian SMEs like us, and I am very confident in the future of this product and partnership.”

While contacted separately, Co-Founder and CEO Finfra Markus Prommik revealed that this product can incur higher payment costs despite generating positive profits and rates approval higher. However, user education continues to be carried out to better understand the challenges and risks of income-based financing.

"The advantage is that RBF can increase approval rates for loan products. Second, automatic payments can save time and provide flexibility for SMEs. Currently, only online sellers have access to our RBF product. The interest rates offered depend on the risk profile, but are flat "The average is around 2,5% per month," said Prommik.

For your information, Finfra is a startup providing loan infrastructure that operates with its P2P Lending subsidiary, Danabijak. Meanwhile, Xendit built payment infrastructure which is now operating in Indonesia and the Philippines.

MSME funding model

From the information we have gathered, it seems that there are not many platforms providing MSME financing or capital products with the RBF scheme. So far what we have found is the Jenfi platform from Singapore, which claims to be the first RBF product provider in Southeast Asia. The new Jenfi will officially launch in Indonesia in June 2023.

Quoting information on the official website, Jenfi explained that the RBF model is different from equity financing which takes a portion of share ownership to obtain capital. This scheme is also said to be more flexible and ideal for MSME players who are pursuing long-term business growth.

In Indonesia, most alternative financing facility models offered by startups are in the form of P2P Lending. Ease of application and wider access enable business actors to obtain capital facilities compared to options from traditional financial institutions.

Another model that is currently being developed is Securities Crowdfunding (SCF). Business owners can raise funds to develop their business where investors can enter through various instruments, such as share ownership, bonds or sukuk. Even so, the scale of use of SCF is still far from P2P Lending.

Based on OJK data as of October 2023, the total outstanding loan of P2P Lending reached IDR 58,05 trillion with a total of 101 organizing platforms. Meanwhile, the total collection of funds through the SCF platform has only reached IDR 1,01 trillion from 16 registered platforms and 164 thousand investors.