Interviewed Company: SimpleFinance
Sector: lending, P2P, Russia
Interview Monday 10th July 2017
Interview with Alexey Basenko
Subjects: Fintech, Micro Finance Organisations, Lending
How does fintech in Russia differ from fintech in the UK, or EU, or China.. it’s a big question and one suspects much crossover and translation between places. Even so, here’s what I learned from the interview with Alexey Basenko, CEO of SimpleFinance.
Alexey Basenko established SimpleFinance in April 2015 as a fintech lender that would provide capital loans for small businesses in Russia. Alexey says that his goal was for SimpleFinance to be both a lender and an educational platform. By providing a variety of tools for SMBs to grow, SimpleFinance aims to help businesses develop into better, more stable, clients for the lender.
Alexey…” Around two years ago I came up with the idea to create a modern micro finance company… to meet the needs of the clients, those being what you would call SME sized businesses. I researched to determine which products would fit the experienced problems of this sector…in terms of raising finance and borrowing money.” Alexey found that the problems were:
1 Bureaucracy. Most people know very little about conducting business in Russia but can very much imagine the frictions that exist in the UK could be magnified to a magnificent level by the scale of the country.
2 Long durations. What is ‘bureaucracy’ if not the processes of a system, fully connected by humans in a typically top-down approach to decision making? As it has done around the world, technological innovation is improving the agility of Russian banking.
3 Changing attitudes. Micromanaging information by traditional banking institutions creates delays, but attitudes are changing. A recent report conducted by PwC found that respondents in Russia expect consumer banking and SMEs to experience the highest level of disruption in the years to come. They see the move towards non physical or virtual channels as the most important trend in the banking industry, to which they intend to respond, see report.
4 The service is uncomfortable to use. “Working with traditional banks directly can be cumbersome.” Yes I can imagine.
So Alexey, who has a background in Banking and clearly understands the particularly Russian problems for SME’s, devised a multi-product / service solution, to make it simple and accessible. And called it SimpleFinance.
“Conventionally the services would be provided by banks…however , to access them is extremely difficult, a long list of requirements…then micro finance organisations began to appear…”
This is a typical response to this problem. When huge clunky organisations make it utterly unattractive to use their services, the market will, unless actively prevented from doing so by regulatory bodies, come up with solutions. And for fintechs, solutions are typically a very slimmed down, tech enabled, product focused result. A company that does a small number of things efficiently and elegantly rather than a large number of things all in a hideous way.
“SimpleFinance has a microfinance licence from the central bank of Russia” Alexey informs me. I was about to ask about the Russian equivalent to the FCA and I’m guessing this is it, without wanting to get bogged down in details… it’s a micro lending licence, I ask Alexey for a summary…
“We can’t open deposits accounts, but can work with individual entrepreneurs and businesses. While we can provide credit, we cannot accept deposits…or trade commodities…”
Alexey runs through the products they provide.
“…base product – unsecured loans, cashflow loans essentially, 200,000 to 3M roubles… The benefits of it we can provide loan within 24 hours… if a company applies for a loan in this way … we send a consultant to interview the client and ask the questions in person. The default rate is zero.”
I’m surprised they visit the client in person, but perhaps not, as a means of determining the validity of the application it’s pretty secure, and as the loan is unsecured that’s going to matter. As it happens it’s the only one of the services that has a human interaction as part of the delivery process.
“…the next product is factoring… from 1M to 1B RUB we work in partnership with major federal chains who buy and sell everything in Russia and …. SimpleFinance factor the invoices… fully electronic documents… makes financing available with one click.”
Next is something uniquely Russian I think.
“…tender loans … when a company takes part in a state auction we finance the auction fee.. within one hour…”
I ask for clarification on this because it’s a new thing to my ears.
“The Russian government … puts opportunities for tender… building work, schools, infrastructure… companies bid for these in auctions, the company has to pay 5% deposit of the value of the tender sum, which they get back after the auction has closed. Regardless of if they win or lose. SimpleFinance finances these loans… all we need from the company is the link to the auction and their Tax ID… from Tax ID we can identify the company and their financial standing as well as business background…”
Ah that’s an interesting process… and it follows into the next product, …” when they win the tender auction, they need a bank guarantee, now we are an official partner to big banks that provide bank guarantee… our service allows us to combine our tender-related offerings and offer bank guarantees additionally from the first step (when applying for tender loan) so the client knows they have the full package of financial needs covered before starting their tender journey”
I have to ask…what does the bank guarantee?
“When the client wins an auction, he needs to sign a bank guarantee, which ensures that if he cannot cover his costs during the completion of the project, the bank will cover it for him. SimpleFinance has also recently introduced a new product for fulfilment of government contracts, which covers the final step for tender-related financing. It’s a loan from 300,000 to 3M rubles that helps the company get on its way for the initial stage of fulfilling the auction-related project.”
Ah so now it starts to make sense… of course companies who win a contract might need to make additional expenditure or bring on more staff before they can even started… and SimpleFinance provide…
“…everything a client needs to compete for government tenders, including the cashflow to be able to deliver on the project. In the future SimpleFinance will develop system to facilitate government projects, electronic signatories, and everything for the client.
Finally there’s asset-based lending, commercial and real estate… one of the products that can be cross sold with other products. Basically it’s looking like a full stack of solutions for the Russian SME sector, and I detect a P2P model somewhere in there…
Is there a P2P element of the model?
Indeed there is, under a separate url, SimplyFi.ru
“…loans have to be taken by a company (SME) … investors can be anyone … the investors get higher return on loans, higher returns and quicker turnover… the borrow crowdsources the lenders / investors through the platform…and can choose who they accept as investors. Investors can choose from multiple companies… 3000RUB minimal investment… an investor can’t invest more than 20% of the total loan amount…”
There is no other MFO (Micro Finance Organisation) in Russia with the exact mix of products, which we feel gives us a competitive advantage. SimpleFinance caters for all financing needs of its clients by providing tender loans, factoring, asset-based lending, cash-flow loans and P2P lending for small businesses, which also help to guide the client through their business cycle. SimpleFinance prides itself in being a socially conscious company, only providing loans to clients who we believe will benefit from the transaction.
So there we go, in a nutshell, a glimpse into the similarities and differences of the fintech system in Russia. SimpleFinance tell me they have zero defaults on all products…and the intention is that their client companies stick with SimpleFinance as the companies adapt and grow… SimpleFinance themselves confirm they have exponential growth… in excess of 100% per annum… and are leading the market, early days as it is.