Germany is hosting this year’s G20 Summit

Behind the scenes: preparing the German G20 Summit for SME Finance.

What : G20 Summit Preparation meeting on “Moving forward in SME Finance”

Where: Frankfurt, Germany — KFW Headquarters

When : 26 February 2017

Departure : Jakarta 30 degrees celsius — traffic: heavy

Arrival : Frankfurt 5 degrees celsius — traffic: scarce

Winter coat: none….

Despite the cold, I was warmly welcomed by Anna Klabunde from the Federal Ministry of Finance and Matt Gamser from IFC and founder of the SME Finance Forum. They were not alone. There were 100 delegates from the 20 largest economies. Central bankers, secretaries of state, directors of development finance institutions, and there were 4 FinTech entrepreneurs from Uganda, Denmark, South Africa and myself as only representative from Indonesia.

This summer the G20 summit will be held with the top brass like Prime Ministers and Presidents like Merkel, Xi Jinping, Modi, Trump and their friends or enemies. Meanwhile, in advance of the summit, the ministries of finance and development cooperation are sharpening their priorities on SME Finance.

In summary, it is clear that SME Finance is an important topic. But it nealry fell off the standard G20 summit agenda had it not been for the German delegation and the lobbying of Queen Maxima of the Netherlands in 2009.

Many of the speeches last Friday began with the usual but nonetheless important quote of ‘SMEs being the backbone or motor of the economy’.

The new dilemma’s that arose during the meeting, were mainly about the rise of big data, privacy of data and fintechs. I think the Secretary of State for Finance of Germany, Jens Spahn summed up the main issue of the meeting: “Big data and FinTech will be here, there is no stopping it. The question is how do we regulate it without killing innovation”.

The odd group of people among the ± 100 high level policy makers were also 4 FinTech entrepreneurs, who were asked to speak about their experiences, thus bringing the ‘real economy’ into the mix.

Lars Kroijer, CEO of AlliedCrowds

Lelemba Phiri, CCO of Zoona

Roland Claussen, Co-Founder of Awamo

Thierry Sanders, CEO of PT Sampoerna Wirausaha (Mekar)

Lars Kroijer of AlliedCrowds, a Danish former investment banker, has set up a useful database of funds, banks, venture capital and grant funds to finance SMEs in countries in developing countries. Surprisingly many of the financial institutions in the database have a focus on Indonesia.

Lelemba Phiri of Zoona, started in Zambia and moved to South Africa to help grow Zoona. Zoona’s core business is handling domestic remittances, from one city to the other. But they also help finance small franchises grow and provide advice on how to do this. Does anyone do domestic remittances in Indonesia?

Roland Claussen of Awamo soon realised with the massive fragmented market in Micro Finance (MFIs) in Africa that it would be good to share a database between the MFIs containing the records of their borrowers, so that a KYC (borrower creditworthiness and verification check) would be easier and cheaper. Many African MFIs use Awamo’s system, and use their big innovation: a biometric (10 fingerprint) scanner, to validate the real person applying for a loan. This kind of solution would be fantastic in Indonesia, especially if applied by BRI in a shared database, shared with the credit cooperatives (KSP) and Rural Banks (BPRs).

I decided not to pitch my company Mekar but to share my experience of the up’s and down’s of setting up a fintech lending operation in Indonesia. Mekar did direct lending in 2016, but soon realized that Indonesians (borrowers and loan agents) are very creative in circumventing all sorts of credit scoring systems and protocols, to their own financial gain. We also realised that collections and collecting on loans is not FinTech, it is PeopleTech. People need to go out and collect. This is not a plug and play business, it requires daily sweat, management, training and supervision. It is slow and hard work. This means that mekar would not be able to scale up across Indonesia, until it had a massive army of collectors across the 4900 km from Aceh to Papua. No way will this happen… We realized that FinTech will only go so far is making lending more efficient.

“At the end of 2016 Mekar ‘pivoted’ its business model” summed up by Matt Gamser of the IFC, our moderator. mekar decided put the massive and fragmented group of non-bank financial institutions (FIs) at the center of our model. Since January 2017 it now does 2 things: (i) it generates SME loan leads for FIs ( via online and chatbot technologies. This saves the FIs a lot of time and money; and (ii) Mekar also sells the current SME loans of FIs via a crowdfunding site to the growing middle class of Indonesia. This means the FIs get their money back earlier for them to lend on to new SMEs.

This way the FIs do what they are good at: lending and collecting. This is a nice win-win for FinTech and Banking. So, FinTech becomes complementary, rather than disruptive, to the existing financial sector.

Tim Kanning, the business editor of the Frankfurter Allgemeine Zeitung wrote about the session in the following way.

Frankfurt, February 26th 2017

How Fintech’s can contribute to development.

One of the most important steps to becoming a successful Fintech has already been taken by Thierry Sanders: he failed and stood up again. With his online lending platform, he wanted to bring together the rich middle class from the capital Jakarta in Indonesia with the millions of micro-entrepreneurs in the country that needed loans. It is a win-win, the investors get an attractive investment; the borrowers get a loan. This is much the same as promise by German crowdfunding platforms.


But to Sanders it quickly became clear: the platform attracts fraudsters. The creditworthiness test, which is supposed to safeguard the investors’ money, was tricked many borrowers. [And collections is too difficult in this geographically challenging country]. After a short time he had to pull the pull-cord. In the meantime, his Fintech company Mekar is focussed on generating loan leads from micro-entrepreneurs via Facebook. The actual credit process and the risk management, and collections is taken over established financial institutions. Mekar then also sells these business loans to the richer investors. One million micro-entrepreneurs [financed per year is the goal] for loans of between 2000 and 50,000 dollars.

Offers are often cheaper

The story, which Sanders told on Friday at a workshop in the context of the German G-20 presidency in Frankfurt, shows two things: On the one hand, the methods of the young financial technologists seem to be suitable to offer banking services even in remote and less developed areas of the world. On the other hand, high risk controls have to be worked out, especially in less developed countries. Mobile phones, the Internet and Facebook have spread rapidly in many regions of the world beyond the big metropolitan areas — the mobile payment with the mobile phone is not as widespread in Africa as it is in Germany.

How the benefits of the new financial technologies can be used to drive economic development even in the poorest countries is the them placed by Germany on the agenda of its G-20 presidency this year. For Jens Spahn (CDU), Secretary of State at the Federal Ministry of Finance, it is clear: “Fintechs can really help promote economic development.” The Internet and smartphones made it possible not only to offer the farmer in South America banking services, he said in the sidelines of the meeting on Friday.

The offers of the Fintechs are often also cheaper, so that they become affordable for the poorer population as well. Spahn mentioned ‘Robo Advisor’, that is, automated banking advice, as another example. Proper personal banking advice is ultimately given to clients in western countries if they have a few hundred thousand euros to invest. The computer programs, which, after answering their questions, mostly assemble a portfolio of different passive index funds, could also be used for much smaller investments.

Alternative to horrendous interest rates

In the area of ​development aid, Germany intends to focus more on promoting small and medium-sized enterprises in developing countries. “We need to focus much more on creating a good business environment for small and medium-sized businesses rather than investing directly in SMEs” said Thomas Silberhorn (CSU), Secretary of State for Development Assistance. Ultimately it is the small businesses that have created growth and jobs in rural areas. One problem in Africa, for example, is that many people do not trust the local institutions — whoever makes money there, often transfers it abroad, rather than investing it in the local economy. “Technology can be the booster for the economic development in the developing countries,” said Ingrid Hengster, member of the board of German State Bank KfW, in whose building the event took place.

Apart from Sanders with his Crowdinvesting in Indonesia, there were three other entrepreneurs, which are largely in the category Fintech. Awamo, for example, is trying to spread a uniform online lending system for the 24,000 micro finance institutions that the company has signed up with in sub-Saharan Africa. These mini-banks often consist of a handful of employees, which award microcredits to the companies locally in a paper-based process, at often horrendous interest rates of 7% per week, as Awamo co-Founder Roland Claussen said. Bringing the process of microfinance online in a standardized fashion can save a tremendous amount of time and money, increasing the amount of funding available for small businesses.