We’re delighted to welcome Impact Credit Solutions (ICS) to the Alliance network. ICS offers inclusive credit decision modeling and API-driven lending technology to support banks in lending to women-owned SMEs. We sat down with founder and CEO Reinier Musters to talk about how ICS ensures financial institutions can offer loans to small businesses that are affordable for borrowers and attractive for lenders.
Alliance: For the benefit of our global readership, can you introduce ICS and share the organization’s overall strategic vision?
Musters: At ICS, we enable small businesses to thrive and contribute to economic growth and dignified employment across Southeast Asia.
We do this by lending to SMEs and working with financial service providers (FSPs) to provide lending technology, credit analytics and/or funding structures to bridge technology gaps and mitigate risk. Micro-enterprises are typically served by microfinance institutions, and corporates are served by banks. SMEs remain largely underserved by banks and other financial institutions due to the high cost of underwriting and risk management involved. At ICS, we work on technology and empathy-based solutions to address this issue.
Alliance: The Global Findex shows an 8-percentage-point gender gap in access to bank accounts globally, and we know the gender gap in accessing credit for SMEs is much higher. What are the main barriers that female entrepreneurs face in accessing finance from banks in your target countries?
Musters: Our initial focus is Indonesia. Within the Indonesian SME segment, banks require collateral for larger loan sizes. While this is a challenge for both genders, women are less likely to own business sites, real property or other assets that can be used as collateral.
Women also face greater expectations to contribute directly toward household matters and are often the primary caretaker for children and grandparents. They’re also expected to allocate more business profits to household matters compared to men. These cultural and gender norms have a huge influence on the type of business that a woman would venture into. According to the IFC, women-led SMEs tend to be smaller in scale and less capital intensive.
Alliance: ICS enhances banks’ SME lending capabilities through risk optimization. Can you tell us more about what your solution(s) are?
Musters: We recognize the challenges Indonesian women-led SMEs face. The gender gap exists even before a woman walks into the bank. It is not sufficient for financial service providers to be gender neutral. They need to be intentional in serving the female segment.
Without centralized credit bureaus and other reliable data, banks often set credit limits based on deposits only. This results in unintentionally excluding female borrowers with low deposits. To help fix this problem, our team of data scientists built credit decision/risk models that look at a borrower’s bank transaction data (or cashflow). These models were trained on a dataset of 3.5 million SME customers from a leading bank in Indonesia. Bank transaction data is more predictive of a borrower’s credit risk than deposits alone. By using other more predictive inputs, we can reduce implicit biases against women in a bank’s credit decisions. Our models also help banks avoid missing out on creditworthy borrowers.
We also work with associations to reach out to, and build trust with, female business owners. In May, we launched a pilot for a dedicated lending program for women with Kowani, Indonesia’s largest women’s association with over 64 million members. The program offers unsecured working capital loans and includes webinars as a pre-requisite for potential borrowers. The training webinars cover topics such as creating basic financial statements, evaluating loan products, and applying for a business loan online. The pilot aims to lend to 300-400 borrowers with the ambition to scale to a US$100 million facility.
Alliance: What kind of impact has your business had on SMEs and banks so far?
Musters: We have funded more than 210,000 loans to MSMEs in Indonesia since we launched in 2018. We’ve financed over 110,000 women-led micro-entrepreneurships through one of our local lending partners. Our lending partner also provides financial literacy and business consultation training to each borrower funded by our capital.
Our credit technology has unlocked a US$25 million facility from a leading Indonesian bank to fund SME loans. Our technology enables this bank to channel loans through P2Ps to SME borrowers. Without our technology, banks would need to integrate with each P2P separately, considering each P2P’s unique product and system requirements. With our technology, banks only need to integrate once with us. We do the rest.
Alliance: Are you looking at other segments of the women’s market beyond SMEs?
Musters: We also offer financing solutions for the healthcare sector in Indonesia. Specifically, we look at equipment financing for maternal care and working-capital needs for hospitals and clinics. Our goal is to use our financing to benefit female patients, midwives and nurses.
Alliance: What kind of possible collaborations are you looking to establish with banks and other Financial Service Providers?
Musters: We plan to make SME lending as low-cost and risk optimized as possible for FSPs. By leveraging inclusive credit-decision models and API-driven lending technology, FSPs can offer value-added services to their existing customers and attract new ones.
Alliance: What has been your experience working with banks? What would you change to make collaborations between fintechs and banks more seamless?
Musters: Banks are highly regulated, large institutions and are often slow to act. This makes perfect sense, since for ages they’ve been handling depositor funds and need to be prudent about any new projects. That said, we would suggest that banks adopt a more open stance toward digitalization. We are seeing lending (like all other industries) go digital. The banks that accept that reality sooner will have the better chance of winning the market. Dedicated internal teams with a strong mandate and relevant digital experience are key drivers of a successful collaboration between banks and fintechs like us.
Alliance: Capturing sex-disaggregated data is critical to understanding and sizing the market and establishing a baseline for the program. As per our research into fintechs last year, we found that while most fintechs have access to sex-disaggregated data, many do not put it to good use. Does ICS capture sex-disaggregated data? How do you use it?
Musters: We collect gender data from our end-borrowers and the workforces of our partner FSPs. The goal is to ensure that we are addressing the gender goals that we set with partners like DFC and DFAT. For example, per DFC’s 2X challenge, we are committed to ensure that 50 percent of the FSPs that we provide lending facilities to have fair representation of women in their own workforce or have commitments to address it within the next year.
Alliance: You recently participated in our All-Stars Academy – the first-ever online iteration. How did the Academy help you refine your current business model and strategy?
Musters: The academy was a great opportunity to connect with other fintechs and banks that are working toward similar goals. It’s great to see how many organizations share our mission to drive FSPs to view women as an equally attractive customer segment to men. We drew a lot of inspiration and learning from other FSPs offering non-financial services, which we applied to our own dedicated women-lending program.
Alliance: How did you first hear about the Financial Alliance for Women? What are your hopes for membership?
Musters: We were connected to the Alliance through the DFC. They are a partner of one of our lending programs, the Indonesia Resilience Fund, a US $40M fund focused on healthcare, which includes Gender Lend Investing. Our hope as an Alliance member is to continue expanding our network with like-minded organizations. We hope to continue learning from the experience of other members and collaborate with them on future projects. In the short time we have been part of this network, we’ve already seen many synergies that can provide value to other members and help us improve financial access for women.
