Two Harvard Students Are Changing Lending in Southeast Asia
By Chanyaporn Chanjaroen and Grace Huang
April 7, 2016
Kelvin Teo, a Harvard Business School student building a Web-based peer-to-peer lending startup as part of his curriculum, pitched the project to a potential partner: DBS Group Holdings Ltd., Southeast Asia’s biggest bank. Omitting his student status, he e-mailed the proposal last October to Chief Executive Officer Piyush Gupta out of the blue.
At DBS’s Singapore headquarters, the CEO received the message. Gupta had been seeking ways to harness the Internet to improve banking services and Teo’s venture, Funding Societies, might work. Three hours later, the executive sent his reply: interested.
Today, Teo, 29, and his classmate and Funding Societies co-founder, Reynold Wijaya, 27, are seven weeks from graduation at Harvard in Boston. They also have deals signed or pending with DBS and other Southeast Asia banks to collaborate with their startup, which connects investors with borrowers from small and medium-size businesses.
Their success as entrepreneurs, while still enrolled in the top U.S. MBA program, shows how banks in Asia are eager to join with financial technology firms rather than get beat by them. In a global survey of financial services executives by PricewaterhouseCoopers, 95 percent of bankers said part of their business might be lost to fintech companies.
“The disruption of the financial sector is clearly underway,” the New York-based consulting firm said last month in a report. “Given the speed of technology development, incumbents cannot afford to ignore fintech.” Forming partnerships with innovators is the leading response by banks, the firm said.
Teo and Wijaya are capitalizing on this, as well as their ties to Southeast Asia. They are among what they estimate as the 15 students in their Harvard Business School class who come from the region. While fintech is booming in China, it lags in Southeast Asia. Wijaya says basic financing for small to medium-size businesses is lacking in nations such as Indonesia, his home.
“SMEs have a lot of potential and helping them will also help the country,” he said.
Financial sectors seen disrupted by fintechs in PwC survey.
When accounting company KPMG and Sydney-based investment firm H2 Ventures ranked the top 100 fintech startups last year, eight Chinese firms made the list, which was led by Shanghai-based Zhong An Online P&C Insurance. There were two from Southeast Asia.
Traveling to the region during school breaks, the students raised $1.2 million from venture capitalists in Singapore and Jakarta to back their project, which also will earn them academic credit. They pooled another $400,000 on their own.
Their biggest investor, Indonesia-based Alpha JWC Ventures, became interested after its managing partner and co-founder, Will Ongkowidjaja, learned about Funding Societies through a network of former McKinsey & Co. employees. He used to work in Jakarta for the New York-based management consulting firm and Teo is a former analyst in the company’s Singapore office.
“The guys are really aggressive and their execution is very quick,” Ongkowidjaja said. “They are very focused on doing the right thing and having social impact.”
Freenyan Liwang, president director at PT Bank Sinarmas, the Jakarta-based lender controlled by billionaire Eka Tjipta Widjaja, also heard about the startup and sought out the entrepreneurs. In February, the bank became escrow agent for the firm while it weighs closer ties.
“We are now into a digital era and all these young people can make it happen,” Liwang said. “I am 50-something — I have to learn from them.”
The students began working on Funding Societies in a tiny room off one of the tunnels between buildings on campus. They often debated strategy until midnight.
The company opened an office in Singapore last May and in January a second location in Jakarta. There, it operates under the name Modalku, meaning “my capital” in Bahasa Indonesia, the local language.
The startup, now with 39 employees, has arranged S$5.5 million ($4.1 million) in loans, Teo said. Funding Societies charges a 3 percent to 4 percent origination fee to borrowers and keeps 1 percent of repayments to investors. The students haven’t drawn a salary. Before graduation next month, a partnership with DBS may come through.
“We expect to share details soon,” Grace Ngoh, a spokeswoman for the lender, said in an e-mail.
Last year, Kuala Lumpur-based Malayan Banking Bhd. named Funding Societies a finalist in a fintech competition.
Teo and Wijaya are beneficiaries of Harvard Business School’s recent emphasis on entrepreneurship. Since 2011, students are required to take a yearlong course called Field, an acronym of Field Immersion Experiences for Leadership Development. Enrollees must create a business around a new product or service aimed at an international partner. Funding Societies is an independent project under faculty supervision.
It was at an assigned group dinner during their first week at Harvard that Teo and Wijaya met in the 2014 fall term. They immediately connected. Teo is from Senai, Malaysia; his mother is a retired schoolteacher and father a former manager at a palm plantation company. Wijaya’s parents built Jakarta-based PT United Family Food into a multinational with more than 4,000 employees.
Prior to Harvard, Teo graduated in accounting from National University of Singapore, worked in the city at McKinsey and later as an analyst for New York-based buyout firm KKR & Co. Wijaya, an engineering graduate from the University of Michigan in Ann Arbor, joined his family’s company.
“They are the new generation of social entrepreneurs,” said Jay K. Rosengard, an adjunct lecturer at Harvard University’s John F. Kennedy School of Government, in Cambridge, Massachusetts, one of the students’ mentors. “They understand the need to be profitable themselves,” while also helping other Southeast Asian businesses to succeed.
“The fact that they want to go back to contribute, it’s wonderful,” he said.
(An earlier version of this story was corrected to delete a reference to guessed e-mail address in the first paragraph.)