Ellana Mineral Cosmetics is one of Manila’s pioneers of cruelty-free beauty brands. It started in 2007 as a small kiosk in a weekend bazaar. “We wanted to address the market need for makeup for sensitive skin,” said Diego Buenaflor, CEO and husband of founder Theresa Buenaflor. “Now we have 69 branches nationwide.”
Now in 2021, they are competing against bigger beauty brands. To finance the company’s expansion, Buenaflor has tapped alternative funding schemes. In 2018, it started to use SeedIn Philippines, an online crowdlending platform. “We’ve borrowed at least USD 1 million from them so far,” Buenaflor said.
Companies like Ellana—medium-sized, innovative, and competitive in its industry—are the kind of customers SeedIn Philippines aims to attract since it set foot in the country in 2017. The firm, which is a subsidiary of a platform with the same name based in Taiwan, provides alternative financing to small, medium, and micro-businesses in the Philippines.
The concept is similar to peer-to-peer consumer lending. SeedIn facilitates online loans funded by both retail investors and other financing partners, which can be banks or non-bank financial institutions. The interest is almost double that of a traditional bank loan, “upwards of 15%,” according to SeedIn Philippines executive director Edison Tsai. Small businesses don’t seem to mind such premiums. Last year, the number of companies it financed grew by 2.4x, the highest increase in three years.
The pandemic has been particularly difficult for Philippine MSMEs—firms with asset sizes of less than PHP 100 million (USD 2.05 million) and less than 200 employees. A World Bank survey which polled 74,031 companies nationwide, showed that 15% have closed shop for good due to COVID-19. Startups and local businesses that didn’t shut down have resorted to alternative financing schemes.
In most cases, they don’t have any other options. According to the Asian Development Bank, the share of MSME loans as part of local banks’ total credit portfolio stood at 6.1% in 2019. Other non-standard lenders in the country are First Circle and Acudeen. Unlike SeedIn, which focuses on crowdlending, they specialize in invoice financing and require payments within three to six months.
Despite a burgeoning market, the Securities and Exchange Commission didn’t release guidelines on crowdfunding until 2019. They include a PHP 10 million (USD 210,000) yearly cap for private investors, while qualified investors—banks and other institutions—can invest up to PHP 50 million (USD 1.05 million).
As soon as the guidelines were issued, SeedIn applied for a license to operate as a crowdfunding platform, which it hasn’t been granted yet. Still, based on these guidelines, it can remain operational while waiting for official authorization by the regulator.
With the government predicting a recovery this year, estimating GDP at 6.5% to 7.5%, Tsai thinks that the need for financing will not be waning anytime soon. “We really believe we can keep this momentum,” he said. “Our goal is to have loaned a total of PHP 100 billion (about USD 2.05 billion) by our tenth year, and at the rate we’re going, we can do that if we keep doubling our performance.”
The country shows similarities with the early days of crowdlending in China around 2010. “Like China, the Philippines has a large population with an increasing use of mobile phones and internet connectivity,” said Yujia He, an assistant professor at the University of Kentucky’s Patterson School of Diplomacy and International Commerce. He, who extensively studied the P2P lending space in Indonesia and China, said the Philippines can take notes on how both countries have regulated the space.
“In China, the bubble had to burst before action was taken,” she said. “But in Indonesia, we see it has become more proactive, as it worked with industry players to come up with regulatory policies. Governments usually don’t have the full technical and administrative capacity to manage the growth of this industry, so there is a need for a collaborative approach with key stakeholders.”
For now, retail investors on the platform are enjoying attractive yields, despite the high risks and fees involved. SeedIn charges 10% of the amount earned by investors and a platform fee to businesses looking for loans.
Regine Echano is an overseas worker who started to invest with SeedIn in Q2 2020. “I know my hard-earned money grows better than inflation in the Philippines,” she said. “Even though I’m saving a little for now, with little interest, I know it can still grow in the long run.”
SeedIn more than quadrupled its customer base in 2020, thanks to users like Echano. By mid-April, it had more than 50,000 users. A third of its investors are overseas workers, and almost half are in the age group between 18 and 35. They can start funding projects for as low as PHP 1,000 (USD 20).
“We’re in the digital age now. It’s a great equalizer,” said Tsai. “The misnomer is that investing is for older people, for people with money. With technology, you can see that you don’t need to have too much money anymore to be able to invest.”
(Edison Tsai’s title has been corrected in the 4th paragraph. SeedIn’s user number has been updated in the penultimate paragraph.)