First Circle, a fintech #startup based in the Philippines, raised US$1.3 million in venture capital from Accion Venture Lab and Deep Blue VC.
That’s on top of the US$1.2 million investment from 500 Startups, IMJ Investment Partners, and Key Capital from last October, bringing the total size of its seed round to US$2.5 million. In addition, First Circle also raised an undisclosed sum of debt funding.
The startup gives loans to small and medium-sized enterprises (SMEs), based on its own credit scoring process that factors in multiple data sources, such as social media, ecommerce transactions, and banks. The assessment period takes only 24 hours, and after that funds become available immediately.
SMEs are often prevented from growing because they don’t have access to cash at the right time, says First Circle CEO Patrick Lynch. If loans are made available to the right kind of business in a non-bureaucratic way, sales and profit can soar.
First Circle launched its platform about a year ago and has since handed out some 500 loans, according to Patrick. Average loan size is US$10,000, and the loan period typically lasts three months.
The potential to support SMEs with credit is huge the Philippines. According to a report co-authored by Deloitte and Visa (PDF), they account for 35 percent of the country’s gross domestic product and employ 65 percent of the workforce. But in terms of access to finance, Filipino SMEs are worse off than those in neighboring countries.
Responsible for the risk
First Circle likes working with ecommerce merchants because their sales revenue is transparent, which makes risk assessment easier. It partners with Lazada and other major ecommerce sites. But non-ecommerce businesses can also qualify for a loan.
The startup lends out of its own balance sheet.
That differentiates it from the many peer-to-peer lending platforms that are booming in countries like Indonesia and across the region.
For these platforms – which use the more common form of online lending – the loan comes from third-party investors, not the platform owner.
For Patrick, it’s an important distinction. He believes being responsible for the risk in the case of loan defaults is essential for the business to reach long-term sustainability.
In that sense, First Circle has more in common with traditional lenders, like banks, than P2P lending startups.
“The lender makes money because of managing the risk,” he says.
Patrick worked at Morgan Stanley, and other co-founders have been at Goldman Sachs, McKinsey, and Amazon – so the team brings a lot of experience in finance and operations to the table.
A job with Compare Asia Group, which operates sites comparing financial products, brought Patrick first to Hong Kong, then to the Philippines, but his stint there lasted only a year. He decided to start up on his own by tackling the SME lending opportunity.
For now, First Circle is focusing on the Philippines, but expansion to other Southeast Asian countries is in the cards for the future.
Accion Venture Labs is the investment arm of Accion, a global nonprofit with over 50 years of experience in microfinance and financial inclusion.