CHRIS GILMOUR: I’m talking this evening to Idan Jaan, who is the CEO and one of the founders of a fintech start-up company called Fundrr. Idan, good evening.
IDAN JAAN: How are you doing, Chris? Thank you for having me.
CHRIS GILMOUR: I referred to you as a fintech. That’s not strictly true, it’s not just a fintech. You do an awful lot of other things, and your main thrust, if I can put it that way, is helping to fund small and medium enterprises, which in South Africa and in many other countries in the world have a very, very difficult job in trying to attract funding.
IDAN JAAN: Yes, exactly. Like you say, it’s a global phenomenon with small businesses. Small and medium businesses per se just cannot get access to funding. Recent statistics from the National Credit Regulator show that most businesses do not last more than two years solely because they cannot get access to funding. So there a big funding gap in South Africa.
There was a study recently by a company called Finfind, estimating the credit gap in the country to be R86 billion for small businesses. That means that these businesses are essentially relatively good businesses, they are stable businesses, they are financially healthy businesses, but they just cannot get access to credit from the financial sector. That has given rise to lending start-ups, such as Fundrr, to come into the market and start servicing these small businesses with alternative underwriting models to give then unsecured term loans in a really quick turnaround.
CHRIS GILMOUR: Before we get into the meat of it, give us a feel of the company itself. I referred to you as a funder, a Fundrr. You have a partner in there as well.
IDAN JAAN: Yes. I’ve got a co-founder. His name is Jared. He is a CA, so he has come from a financial background. I’m more of an operational founder. I was involved in a group that had more than 80 small businesses under its umbrella, so I was very much hands-on operationally with small businesses. From that time I actually saw the inability to access funding. I saw healthy businesses, stable businesses, which the banks did not look at. If they did look at them, there would be a 12- to 14-week turnaround time.
Unfortunately, due to the nature and the volatility of these small businesses, especially in the current economy, they need the money now.
So, I and my partner saw a big gap – to enter this market. We started, we got investors on board and now we are rolling. We’ve been operational for over 14 months, and it’s quite exciting.
CHRIS GILMOUR: There’s a very positive consequence of all this, given the fact that small and medium enterprises are, again globally, the biggest employers around the world. Not the large corporates. So, again, you are fulfilling a hugely important social role.
IDAN JAAN: Exactly. It’s impacting investing in some way, if you can call it that. Currently the stats say that small businesses employ more than 60% of the South African employment market. We see that small businesses are the driving forces behind South Africa and, in essence for us, are providing us with debt funding to help grow operations and scale –and carry on operating. We are hopefully growing the economy and growing employment in the country.
CHRIS GILMOUR: Traditional banks, in my long experience of looking at them, don’t understand SMEs. They don’t understand customers or retailers and things like that. What they do seem to understand is big business. That’s fair enough, and that’s maybe their prime expertise. Why is it, do you think, that traditional banks just can’t go in and fill the gap when it comes to SMEs?
IDAN JAAN: It’s a question that baffles us at Fundrr every day, because obviously they’ve got the pockets, they’ve got the know-how. I believe the banking system in South Africa is very advanced, so I’m a big fan of theirs on the transactional side and the innovation side. But when it comes to lending to these small businesses, I can’t quite pin it. I think there is not enough margin, and there is not enough skin for them, do you understand?
There is not enough appetite for them to service these small businesses. The amount of work they have to put in for the small amount of margins that they will make. I think they are just choosing to overlook them, not in terms of capability, just in terms of demand and want.
CHRIS GILMOUR: Also, I suppose, if you use a traditional lending model for SMEs, you are probably going to come up with the wrong solution, whereas you guys have what’s called an automated credit model. Walk us through that.
IDAN JAAN: That’s exactly it. When we built Fundrr we said, “How can we build a consumer credit model that uses both traditional and alternative data?”
When we talk about the banks, what they do is they look at traditional data, they look at financial data, they look at credit reports, audited financials for the past three years, insurance policies, retirement annuities – all of these data that they plug into their models. When we formed Fundrr we asked how we could start looking at things differently, how we could not backtrack all that data and start actually looking at forward thinking data.
So, after creating our model, currently we are using over 100 different data points that we plug in. We look at Vat statements – what the Vat patterns look like. We look at social media, how they engage with customers, their reviews. Are they promoting, are they doing marketing, what is the engagement with their customers? That’s how they are willing, how they market their business, how they are increasing revenue within their business.
We obviously look at personal credit scores, business credit scores, six months’ bank statements. We strip and analyse the business from the bank statements, because we understand these guys are not financially audited, and we can’t rely on management accounts or financials to give us a clear picture of the business. We have to actually do the groundwork ourselves.
So, we built this model which is mostly automated. When I say “mostly”, there are obviously a few companies that will have to have a lot of human intervention because we simply cannot understand the mechanics. Our vision in future is to build industry-specific models – credit models within our credit models, to focus specifically on certain industries to understand them and to provide credit in a much more efficient way.
CHRIS GILMOUR: You mentioned certain industries. Which kind of industries would you be concentrating on?
IDAN JAAN: Currently and organically – and I’m saying “organically” because we have not marketed ourselves in any way – 80% of our book is in the retail space. I think, just to touch on your point earlier when you said the banks don’t like to look at retail, that is a pure example of what we are seeing. And I say it is organic because we’ve never marketed ourselves as a retail lender; we’ve never done marketing in the retail space. It just happened that 80% of the acceptance applications that we receive through our website have been in the retail space. We’ve done a supermarket, we’ve done clothing manufacturers, we’ve done a guy in Pretoria who manufactures his own hair products, which is amazing. It’s amazing to see that this guy really has an operation. So we’ve actually got to see very interesting businesses.
CHRIS GILMOUR: Fantastic. Then, finally, where does Fundrr get its funding from?
IDAN JAAN: That’s a good question. At the beginning my partner and I had to bridge up the business, so we put all of our life savings into the business. We used 100% of that to fund the book. It stripped away every single cent that we had, and we just started giving it out into loans and churning that money.
We were fortunate enough two or three months ago to secure a substantial investment from an Angel investor in Cape Town, who has given us an equity investment and big credit facility for us to tap into, because essentially we need money to lend out money. Now we finally have some substantial debt behind us, and a bit of stock, so we can carry on growing the book and growing the business and helping other small businesses.
CHRIS GILMOUR: Fantastic, Idan Jaan. It’s been an absolute pleasure talking to you, and good luck for the future.
IDAN JAAN: I appreciate that. Thank you very much.