How is Kapital Boost different from other crowdfunding platforms? Besides being the only platform offering Islamic crowdfunding in Singapore, Kapital Boost’s due diligence process seems to be more detailed and intensive. Its founder, Erly Witoyo, comes with a very strong background in corporate credit work with various financial institutions. Below is the continuation of our earlier conversation with Erly.
What would you say are the strengths of Kapital Boost versus other p2p lending platform?
Our key strengths are our due diligence process, transparency, and regional presence.
No short cut should be taken in analysing SMEs. We have a thorough screening and due diligence process stemming from the team’s combined 25+ years of experience in the banking sector. We analyse an SME’s operations, management, financial position, and background to ensure that the credit risk to investors are minimised. In offering transparency, we share key information on the SMEs on the campaign write-up to give investors the ability to make well-informed investment decisions.
The other key advantage is that we are a regional player. We offer our services to SMEs in Indonesia, Malaysia and Singapore. This offers investors diversity in terms of deals and investment risk. Additionally, we are able to learn from each market and use best practices in each to further improve our processes and our service to investors.
How does Kapital Boost screen its deals?
We pride ourselves in our strict screening and due diligence process. We believe this helps to reduce the risk of default for the deals offered via our platform.
Our screening process has several levels of risk mitigations.
First, SMEs need to meet the following minimum requirements to get funded:
- Be in operation for at least one year
- Have minimum annual sales of SGD100,000
- Show positive operating cash flow the past 12 months
- Have a purchase order or working order, or proof of stable monthly cash flow
The last point is to ensure that SMEs has a ready buyer for the goods and services they are selling. This raises the likelihood that the money owed to investors can be covered by incoming cash flow from purchase orders in the near term.
Second, Kapital Boost uses a proprietary credit scoring system to determine the creditworthiness of SME borrowers. The scoring takes into account the SME’s business, financial and corporate governance risk. To have an accurate credit score, Kapital Boost conducts management interviews and requests for detailed information about the company’s operations and finances.
Third, we build partnerships with SME associations across Southeast. Apart from sourcing potential deals, the partners can help to verify the credibility of borrowers (their members), monitor their performance, and pressure members to make timely repayments.
In Indonesia, we have partnerships with Tangan di Atas, the largest SME association in the country, and MOW Corp., a Medan-based business consultant. And in Malaysia, we have a partnership with Dewan Perniagaan Melayu Malaysia Pulau Penang (Malay Entrepreneur Association of Penang) and Loka, a retail-hub for upcoming young fashion entrepreneurs.
Fourth, we believe using the Murabaha structure offers some level of protection to investors. It reduces the risk of funds being misused as proceeds from crowdfunding can only be used for asset purchase.
How is the track record so far? How many deals so far? Any late payments or default?
So far, we have launched 25 crowdfunding deals for SMEs across Indonesia, Malaysia, and Singapore. Around half of these deals have repaid investors in full. For the remainder, their repayment to investors is not yet due. Of the deals completed, there were 3 delays. None have defaulted.
What is the regulation around Islamic crowdfunding?
Since Kapital Boost uses the Murabaha financing structure, which is trading-based, we do not offer securities to investors. We have gotten a legal opinion from a top-tier law firm confirming this. However, we are careful to make sure that we do not breach any aspects of the Securities and Futures Act and other laws and regulations in Singapore, which applies to our business.
As an example, we do not offer financial or investment advice. We are a platform that matches opportunities between our registered members and SMEs. All the dealings and transactions are directly with businesses, project owners or authorized agents we refer to our members.
Kapital boost will keep ourselves updated on the regulatory environment and remain closely in touch with regulators. As and when any new laws or regulations are imposed, whether they be crowdfunding or not, we will ensure that we continue to be compliant.