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Why We Invested in Kim An

Posted on Sep 25, 2020
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Kim An Group announced their Series A financing a couple of weeks ago, so we thought it would be a good time to share why we’re excited about this company and leading this round.

As a quick recap on the company, Kim An is a FinTech platform that bridges the gap between the formal financial sector and micro, small and medium enterprises (MSMEs). Via its platform and more than 80 branches across Vietnam, the company provides an end-to-end service across sales, underwriting and collections to connect Vietnam banks and financial companies to the MSME segment.

The segment: MSMEs, the darling of the lending sector

It’s hardly a ground-breaking insight to say that MSMEs are the backbone of the Vietnamese economy. And it’s very on trend these days to say you’re targeting MSMEs or building a solution for them. But ‘MSMEs’ encompasses a huge range of businesses — there are estimated to be over 5 million such businesses in Vietnam alone, accounting for around 98% of the country’s enterprises — so who specifically do we mean and how practically do you serve this segment which is fragmented, informal and low-tech?

I still vividly remember our first meeting with Thao (Tracy) Phan, Kim An’s CEO and founder. Despite being an ex-McKinsey consultant, there weren’t too many fancy slides but rather what shone through was an incisive understanding of the MSME segment, developed over many years. The company is focused on micro-SMEs with a fixed physical location and lends only to the actual owner-operator of the business. So think small food outlets, vegetable sellers, mom-and-pop shops and so on. In that first conversation, we touched on how to tell if someone really was the owner of a business, how to estimate the revenue and profit of a noodle stand, or how to rethink collection efforts on days when it rained heavily. While these may sound like trivial points, it’s an understanding of these nuances which can make or break this type of business. What was also very clear from that initial meeting was that these insights deeply informed the way Thao and her team designed their products and developed their processes.

And it does require different products and different processes to serve this segment effectively. Some banks start by simply offering a smaller loan size or by sending some sales people to the wet market. It doesn’t work like that. As the most strategic entry point to this segment, Kim An realised that their ‘starter’ product should be small loans of around USD 1,000, which are then repaid via daily collections at the customer’s place of business. Yes, literally a guy on a bike driving around to visit each customer, ever day (I know because I’ve tagged along on a such a collection trip!). Kim An now offers a broader set of products with larger loans and different collection frequencies, and encourages its customers to use digital payments.

Yet this willingness to meet the segment where they were, not where we might wish them to be, and still manage to serve them responsibly and profitably, was what made us want to back this company.

The bridge: Partnerships with banks and finance companies

Getting into the lending business in Vietnam isn’t easy. For example, there are less than 30 NBFC (non-banking financial company) licenses in Vietnam, and most of these licenses are controlled by banks and state-owned enterprises. It’s a very different environment from India where there are 10,000+ licensed NBFCs or Indonesia where there are around 200 licensed multi-finance companies. And as for P2P lending, there is currently no legal framework for P2P lending in Vietnam. All this means if you want to get involved in lending at scale in Vietnam, you have to partner with a bank or NBFC.

Now, as you can imagine, working with banks and NBFCs takes a special skillset, particularly if you want to move beyond providing a service for a single part of the value chain (e.g. origination or credit scoring or collections) to an end-to-end service, as Kim An does. There’s a lot that could be said about KA’s strategy for working with banks and NBFCs, but the ultimate ‘wow’ factor for us came when we saw the approval rate for the loans Kim An recommended to their bank and NBFC partners. There’s quite a few different companies out there who can get a lot of leads into the top of the funnel, but how many of these applicants actually get a loan? When we learnt the percentage of Kim An-recommended loans that were approved, we saw that Kim An had managed to build strong trust with their partners and found a way to bridge the gap between the banks’ requirements and MSMEs’ needs.

The future: New channels, new technology and scale

Kim An has a proven product, and we know that there’s massive demand in the market. The only question is can they scale up to meet that demand? We absolutely believe they can. One part of this is obviously technology, and we’re glad to see Kim An enhancing their technology at every level of the business: from the way that they run day-to-day operations, the way they enable smooth integration with financial institutions, and how they constantly strive to use data more effectively.

Another part is working with the multitude of platforms out there who also serve the MSME segment, for example, POS providers or e-commerce platforms. I’d be rich if I had a dollar for everyone who said ‘I’m going to layer on financial services to my platform and start lending to my customers (or merchants)’. For all the reasons mentioned above, this is easier said than done. Kim An could actually be the engine which makes that happen, and we’ve seen early proof points of that in its partnership with Sapo, one of the top 3 POS providers in Vietnam.

Finally, one last word on Thao and her team, because yes, the VC business is all about the people. We love working with Thao because of her incredible understanding of her customer, the way she harnesses her team towards exceptional day-to-day execution in a complex industry, and the fact she does this all in a ‘no fuss, no drama’ way. What a boss!

We’re so excited to be working with the Kim An team and other partners to accelerate financial inclusion for the millions of MSMEs in Vietnam. If you think you could also contribute to this vision, we look forward to hearing from you.

– Shuyin Tang, Partner, Patamar Capital

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Information and opinions presented in this material have been obtained or derived from sources believed by Patamar Capital LLC to be reliable, but Patamar LLC makes no representation as to their accuracy or completeness.Patamar Capital

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