On Call with Insignia returns with a new guest, ⁠Shilpa Gautam⁠, the CFO of ⁠AwanTunai⁠! AwanTunai is a company digitizing the traditional FMCG supply chain in Indonesia to enable low-cost, equitable financing for MSMEs, a market opportunity worth US$300B in this segment alone.

Over the years, we’ve heard plenty from CEO Dino Setiawan on the journey of AwanTunai (its origins, growth amidst the pandemic-hit lending space, and its appless, proprietary approach to embedded financing). 

This time we get to hear from Shilpa’s point of view as CFO: how her joining AwanTunai was a full circle moment in a decade-long career across lending, audit, M&A, banking, how she approached becoming the company’s first CFO amidst the onset of the tech funding winter and the company’s next fundraise, and how her role fits into AwanTunai’s big picture “building the next wave of financial inclusion in Indonesia”, and a “textbook example for financial inclusion” globally.

TLDR

How this Indonesian fintech is setting a new standard globally for financial inclusion: The CFO POV

(1) The value of solving risk before scale. In AwanTunai’s case, this has been through their proprietary ERP solution capturing alternative sources of data to underwrite loans. 

“Now coming back to Awantunai, we’re a simple lender. We’ve got one product, which is inventory purchase financing, and we lend to the FMCG space…We’ve been quite contrarian in our approach. Our philosophy has always been, we solve for risk before solving for scale.”

(2) Developing “data/risk-capital” fit to optimize supply 

“For me, demand is not the issue. It’s the supply of lending capital, which can impede or scale the business. So I work very closely with private credits and banks convincing them and negotiating with them on the terms of the credit. Obviously, lending is all about a game of margins. Trying to get the right margin so I can run a profitable, efficient business…

I also work with risk very closely because different lenders have different risk acceptance criteria. To build that trust with lenders, we need to have a very solid risk acceptance criteria internally.”

(3) The role of a CFO as the “disciplinarian” of a business. 

“So my theory is that the CFO is, so to say, a primary advocate for maintaining discipline, be it around revenues, cash flows, efficiency, or runway burn rate.”

Shilpa experienced this first hand coming into AwanTunai as its first CFO, preparing for the next fundraise, only to be met with the tech funding winter. 

(4) Writing the next chapter of financial inclusion 

AwanTunai came out of the winter with a fresh round of funding attracting funds globally, from Norway, Finland, Japan, and Thailand. Shilpa attributes this to the same differentiated approach the company has been taking to lending that also attracted her to join the company in the first place. 

“We are building the next wave of financial inclusion in Indonesia, which will hopefully be a textbook example for financial inclusion globally.”

(5) Solving for scale in a massive market. For AwanTunai there’s still significant room for scale even just on top of their inventory purchasing financing product. 

“Just within this space, there is a hundred billion of inventory that flows through three levels. So it’s US$300B of flows that we are looking to finance. There still is a lending gap of about US$50B in total assets, which we can easily look to solve.”

Timestamps

(01:15) Introducing Shilpa Gautam, AwanTunai CFO;

(06:44) Scaling a Lending Business with the Capital Efficiency and the Right Investors;

(13:50) The Value and Cost of Solving for Risk Before Scale;

(20:45) Solving for Scale in a US$300B Market Opportunity

(25:01) Make or Break Corner: From Raising Series B Amidst the Tech Winter to Presenting at Davos

Transcript

Paulo J: This is our 161st call with many leaders and founders out there making great things happen in the region, so I’m excited to have another conversation with somebody new. It’s always great to have a fresh guest on the show. 

But the company she’s working with should be familiar to our long-term listeners.

We’ve had the CEO on this show a couple of times over the years and really been able to track their journey. So if you’ve seen the title on our podcast or YouTube or wherever you’re tuning in, you probably know that we are going to be talking about Awantunai. 

AwanTunai is a supply chain financing platform based out of Indonesia, doing some great work for MSMEs and some pioneering work with algorithms designed to underwrite a lot of the lending capabilities for a traditionally underbanked and unbanked sector.

And for my guest for this episode, we have none other than the CFO of Awantunai, Silpa Gautam, who has an interesting history with the company and Insignia Ventures as well, which we’ll talk a little bit about later on. 

She also just has a really diverse background in terms of a career that I think has really impacted the way she has approached working with Awantunai, which we’ll get into as well later on. 

Introducing Shilpa Gautam, AwanTunai CFO

Welcome to the show, Shilpa. How have you been? I think the last time that we’ve gotten to have a conversation was not for a podcast, but for Insignia Ventures Academy, actually one of the classes in the StartCFO program.

Shilpa: That’s right. So it’s nice to catch up with you after almost nine months that we’ve had that session. I had kicked off the first cohort of the Insignia Ventures Academy StartCFO program, and mine was [one of] the first series of many CFO talks. So it’s been a while since then both professionally and personally. 

There’s been a lot of growth for the company. We’ve just closed a Series B. Things are getting busier. So it’s great to be back and talk a bit more about the journey of Awantunai and happy to talk about my personal journey as well, how I’ve grown with Awantunai as well.

Paulo J: Let’s dial it back a little bit and go back to that intersection of how you discovered Awantunai. And I think more critically, what was behind that decision to join this company at that point in your career — three, four years ago already?

Shilpa: It’s only been two years, but it’s been 8x growth since I’ve joined. So it feels like I’ve been here longer, and that’s a great thing, right? It feels like I’ve known Dino and Rama forever.

I was introduced to Awantunai by one of its existing investors; it was actually Insignia. So thank you for that. And at that point in time, I had obviously heard a lot about Awantunai because Awantunai had just closed its Series A round with IFC as a lead investor. 

Everyone has tried their hand at lending into the microsegment, but this was one startup that really caught my attention because I think this was also IFC’s first investment in Southeast Asia and in fintech lending. So that was really something. 

At that point in time, when I met Dino I really liked the change that he and Rama were trying to bring about. So what Awantunai is doing is digitizing the traditional supply chain, building a digital infrastructure in the FMCG space, and monetizing through embedded financing. 

We are bringing about that change in the microsegment of Indonesia. And our vision is to provide very low-cost financing for micro and SMEs. And I personally believe SMEs are the engine for economic growth and unsecured lending can unlock a massive amount of economic growth and prosperity. 

So for me, taking a step back, joining Awantunai was life coming full circle as I started my career with KPMG when I was training to be a chartered accountant, so back in the day, I audited the lending portfolios of most of the banks in India. I’ve looked at what is typically their credit appraisal process, the risk controls, etc., because that’s the job of the auditor. 

After that, I moved to Ernst Young in London. I was right in the middle of the global financial crisis. I moved to London in September 2006, and then two years later, Lehman happened. Exactly on the same day, I moved to London and at that point in time, I was an administrator to one of the Icelandic banks that had collapsed. I had built the business model of a lot of housing and mortgage companies which had collapsed and were under public ownership. I used my past experience to learn a lot about lending. 

When I came to Awantunai, it made sense because I was the first CFO that Awantunai had. Even in my time at Citi across South Asia and Southeast Asia, I have worked on debt and equity transactions across banks and financial institutions. So lending is one space I was super comfortable with. 

Indonesia was another space I was very comfortable with because back in the day, I’ve actually worked on an acquisition of a local Indonesian bank…So I did understand the space really well. So for me, career moves are all about recognizing and playing to one’s strength and Awantunai seemed like a perfect fit.

Scaling a Lending Business with the Capital Efficiency and the Right Investors

Paulo J: Some great advice there for those listening who are considering a career move, especially into a venture-backed company like Awantunai.

I wanted to delve into your role as CFO. You did mention you were the first CFO for Awantunai. What does your role mean? 

Obviously, there’s a dictionary and technical definition for what a CFO does and is expected to do, but specifically to Awantunai’s business model and what they do in Indonesia, what does your role mean as CFO? How does it compare to other tech companies that you’ve been in, in the past or have seen in the region and other lending companies?

Shilpa: Let me take the first part of your question as to what does my role mean as a CFO of Awantunai. I wear many hats in this role. 

My role in Awantunai is not just focused on building a robust financial reporting and a solid governance framework, but I also originate lending capital, which is a key tool for growth in our lending fintech. 

So for us, there’s this question that I get asked by investors all the time: “Hey, I know you’re raising so much from banks. Are you able to deploy it?” For me, demand is not the issue. It’s the supply of lending capital, which can impede or scale the business. 

So I work very closely with private credits and banks convincing them and negotiating with them on the terms of the credit. Obviously, lending is all about a game of margins. Trying to get the right margin so I can run a profitable, efficient business. That is something which takes up a lot of my time. 

I work very closely with the sales team on deployment of capital, building up sales and growth targets. So as of today, for instance, I have a loan book of X, I want to grow it at three X, how am I going to deploy that capital? And accordingly, I will pretty much time how I approach that lending capital. 

I also work with risk very closely because different lenders have different risk acceptance criteria. To build that trust with lenders, we need to have a very solid risk acceptance criteria internally.

And I also oversee the treasury operations. Treasury can become very complex as asset allocation becomes complex with several lenders with different eligibility and risk acceptance criteria. So, that is a couple of aspects of my CFO role in addition to financial reporting. 

But I think one of the most important aspects of my role is fundraising. It includes everything, be it investor outreach, pitching the Awantunai business model to the right financial and strategic investors and running with the DD process, which can be a very long drawn, exhausting process and reporting to the existing investors, most of which are DFIs and CVCs. 

So I think given my skills and experience from my previous jobs, that is also the reason why we’ve never hired or had the need to hire advisors or investment banks for our fundraising. 

Now to your second question, as in how is it different from different tech companies or lending companies that I’ve seen? I believe that, depending on the companies, the roles of a CFO can differ. 

Some CFOs are just very numbers focused. But I’ve also seen startups hire CFOs from, say, investment banking background with no accounting or reporting background or no risk background, which could be risky, but it’s of course their call. But I do both and a lot more. 

So my theory is that the CFO is, so to say, a primary advocate for maintaining discipline, be it around revenues, be it around cash flows, efficiency, runway burn rate. The key is to look forward 12 to 24 months and see how the numbers today will enable a two to three-year strategy. 

It’s also about understanding your burn, which obviously can be different across different stages of the company. So [it’s important] for a good CFO to understand what is the burn from product and tech, which may bring in value say in six, 12, or 24 months. Or what is the burn from marketing which generates sales today? 

So one thing I’ve seen from my experiences is [that when] equity was easily available, in the days of cheap equity before the tech winter, back in 2021, there was a crazy amount of investors’ money being spent on marketing or promotion or spiking up sales with no real impact on long-term growth.

So CFOs, depending on the stage of the company, they really need to challenge whether the spending is necessary. CFOs need to build a company for survival in these tough times. So with Awantunai, because I joined a Series A company, my focus was bringing in efficiency, managing the burn, because pretty much two months after I joined Awantunai, it was the start of the tech winter. And to conserve the runway, to keep Awantunai going until the fundraise, that was one of my key challenges. And hopefully I did well.

Paulo J: That leads into my next question, actually, because Awantunai has just raised its Series B, as you did mention. And it’s quite interesting that you got some lead investors and participating investors from all over the world, Norway, Japan, Finland, Thailand. 

Can you speak a little bit to what is the significance of bringing these investors in particular at this point in time in Awantunai’s growth? What are the opportunities this opens up for the company moving forward?

Shilpa: I think in terms of the opportunities, firstly, we’ve got that recognition globally, with investments from Japan, Thailand, Finland, Norway, in addition to the existing IFC. Firstly that’s a huge achievement in these times, especially where it’s hard to get such good quality investors. 

Now coming back to Awantunai, we’re a simple lender. We’ve got one product, which is inventory purchase financing, and we lend to the FMCG space. Now lending may seem easy and straightforward to many, but it is amazing how many investors that I came across who did not understand lending. 

We’ve spoken to fintechs in the ecosystem where investors pushed the founders to grow fast without really building risk management. We’ve been quite contrarian in our approach. Our philosophy has always been, we solve for risk before solving for scale. 

So investors like IFC, FinnFund, NorFund, and the CVCs of MUFG, OCBC, BRI, they’ve been really supportive. Our investors support our vision of building a long-term, efficient, profitable and sustainable business. 

So I think DFIs typically invest in companies with a positive social or economic impact. We are all that and soon to be profitable. So I think it’s been our privilege to have such high-class investors join our cap table and with DFIs and with banks, CVCs. As a FinTech lender, this opens up access to capital. It helps us scale because lending, as you know, is all about [the loan book]. 

Solving for Risk Before Scale

Paulo J: That just speaks to how much of a mark Awantunai is leaving globally, and as this mission and the work that you guys are doing become known more widely to many other industry players as well. 

You mentioned solving for risk first before solving for scale in this contrarian approach. What does this mean in today’s lending environment? We see a lot of lending companies struggling. They have different business models from Awantunai as well, but it’s still lending and it’s still in a similar space. So what is Awantunai’s role in this landscape with this approach that it’s taking?

Shilpa: I think what Awantunai has focused on is solving for the missing piece, which is building risk management in this segment, which has traditionally been constrained by banks in terms of getting access to capital because banks usually ask for hard collateral. 

Even if you look at banking, I’ve seen a lot of banks where SME banking was an orphan child. It didn’t sit in retail. They tried to move it to corporate banking. The corporate banker said, “Hey, these are too small ticket sizes.”

So SME bankers obviously did not have the right tools to analyze this credit. SME bankers were using a very heavy CA based approach which corporate bankers do, which is very expensive. 

And also secondly, it’s not granular enough. That’s why we saw many blowups happen. So I think the missing piece is to find that data. And as one of the investors I recently met said, “What you’ve solved is basically forensic accounting.” 

We don’t have the traditional data sets to look at. So what do we do? We look at other unique data sets, such as transaction data. We reconcile them to bank statements. We look at mobility patterns. We look at patterns of buying and selling by suppliers. 

For instance, wholesalers have certain times when the sales peak, say at 10 in the morning, they peak again at five, then they drop at six because they go for their Friday prayers or their evening prayers, and then back at seven or eight, they peak again. 

These data sets allow us not just to solve for underwriting, but also fraud detection. Now, what we do is we take these data sets, we triangulate this data and we project, based on the back end data, and that’s where the real path to breaking out is.

One thing to note is, internal fraud is one of the biggest causes of lending program failures, and we have seen it across many lending companies of late. So we have device controls on our people and data and we’ve utilized data sets to detect external as well as internal frauds, which is a big part of our risk management. 

What we’re doing differently is we’ve branded ourselves as a supply chain partner. We have seen a lot of hundred percent digital lenders come in, but they don’t really work out because the SME segment really needs a human touch, the human relationship. 

So a lot of our technologies are backend. We’re not asking them to use some fancy apps. We’re basically collecting the data through our ERP plugin, and then we’re running advanced algorithms and pattern analysis to underwrite as well as to detect fraud.

So what we’re essentially trying to do is capture data, process the data efficiently, and essentially run forensic accounting at a low cost.

Paulo J: I wanted to dive a little bit deeper into how you try to manage the costs of such an operation. 

Although there is a lot of technology involved in the backend, as you did mention, I presume there’s a lot of human touch also that’s involved where you have to go out, in terms of sales as well, talk to these merchants, onboard them and all of these and make sure that they’re able to use the ERPs properly and all of these things and making sure everything, the whole operation is sustainable. 

How do you keep tabs on this as CFO? You did mention earlier that it is part of your job. You do liaise along with the sales team and operations and all that.

Shilpa: Of course. The first point of understanding the breakdown of your costs is to understand unit economics. How much of sales is each salesperson bringing and how much of revenue is each salesperson bringing in.

In terms of sales, back in the day when we were trying to get merchants to use an app, we were burning money because with merchants, they’re not tech savvy. 

That’s why we built appless solutions, which I think Dino’s covered in one of your previous podcasts. So we’ve automated some parts of sales like micro lending. This is something which can be easily automated. 

We’ve built prototypes and we’re running these prototypes and we’ve seen success. So we have managed to control our risk in the microSME segment lending, which is where we’ve seen startups in the NPL rate of anywhere between 12 to 60 percent annually, and we’ve contained this to single digit numbers. 

Now in terms of how we manage costs between tech and the human touch, I think in lending, what we need to primarily solve is the fraud problem. Yes, there is a huge credit risk, but a large part of NPLs is driven by fraud. 

So what we really needed to do was validate that this is a real inventory purchase transaction that we’re financing. And we looked at existing ERP software and accounting systems, which did not really solve for it. So we built an ERP system in house.

Then the second aspect was trying to get users to use this ERP system. Now, for a lot of mom and pop stores, you can’t get them to use complex systems, let alone even apps. So we automated that aspect of data entry because we would just see our suppliers’ downstream sales, and that’s how we would give credit to the merchants. 

But for suppliers, there’s different categories of suppliers. There are suppliers who are still using pen and paper or just about Excel, and are happy to use our ERP system. For the others, we decided we care about the data, not how or whether they are entering it. So we created an ERP plugin. So we’re able to extract all that data on that ERP plugin and use that data sets to manage underwriting. 

So I think in terms of cost, there has been an evolution where we have cut down on sales expenses, which were related more to acquisition of customers in terms of using the app, and we’ve pivoted that sales team to actually building a larger wholesaler and distributor base. And then solving for downstream lending as well at the same time, which is where we get the data.

Solving for Scale in a US$300B Market Opportunity

Paulo: That’s an interesting point with a multi-sided kind of platform where your focus on acquisition and sales channels can really impact the costing and the unit economics of the whole thing. 

And it’s quite interesting that, as much as we’ve talked just in this conversation about the complexities of the operation and even with Dino, our conversations can last for a whole movie. But it’s actually just one product so far: supply chain financing.

In terms of growth moving forward, what have been the conversations around expansion? Is it really just going to be focused on scaling the loan book with this particular product or are there considerations for other kinds of products that you are thinking about moving forward?

Shilpa: So just in the traditional FMCG supply chain — and this is excluding the modern retail and the Alphamarts — just within this space, there is a hundred billion of inventory that flows through three levels. So it’s US$300B of flows that we are looking to finance. 

So obviously there’s a lot of banks and SME banks and other fintechs already in the space, but there still is a lending gap of about 50 billion in total assets, which we can easily look to solve. 

Now our lending is to the traditional FMCG suppliers, which are basically the backbone of the Indonesian economy. These are the staple goods, the daily necessity goods. And what we have come to realize is our ERP plugin solutions, we can detect patterns in this particular industry. 

And just within this industry, we can easily grow to a US$10B loan book without having to change either the product or the industry. So what we see in terms of growth is loan book growth and regional expansion in Indonesia. 

My key areas of focus come from building the supply, so creating the lending capital to grow the loan book, and keeping the cost base efficient. So running an efficient business and growing profitability. 

We’re currently EBITDA positive and we’re looking to be profitable by the end of the year, and all this on the back of one product, which is inventory purchase financing. And I think the only other investment that we will need is investment in tech going forward as we scale, because now that we have solved for risk, we are now starting to solve for scale.

Paulo: If it works, it works. And one thing that interested me in what you mentioned is the importance of actually building up the supply and how have the conversations evolved since your time joining post Series A and AwanTunai, and then leading up to now with the Series B, how have the conversations with these FIs and banks and investors evolved in terms of pulling the supply together?

Shilpa: I think when we speak to banks, a lot of banks have seen many pitches from fintech lenders, where everyone says, “We have 0 percent NPLs.” 

One of the challenges is to get banks and private credit institutions convinced on our credit performance at this level. And when I joined AwanTunai, there were three lenders. We had one large private credit fund and we had two Indonesian banks. Today we have over nine Indonesian banks. We have global banks which are going to deploy to their Indonesian branch, and we’ve got private credit institutions lined up. 

So obviously we’ve seen a lot of loan book growth and that has been as a result of our credit performance. So I think one of our main tasks in achieving scale and profitability is showing great credit performance and to show that as we continue to scale, the credit risk is either the same or actually getting better. 

It’s been quite interesting in terms of the conversations that we’ve had. And also the fact that in this round, IFC obviously participated, taking up again as existing investors and for banks like CBC, MUIP and the likes of NorFund and FinnFund coming in, they’ve added a lot of credibility to our business model. 

Also, I think banks like to see profitability or near-term profitability as they lend. And now that we’re in that sweet spot, which is near profitable, we are seeing a lot more supply opening.

Make or Break Corner: From Raising Series B Amidst the Tech Winter to Presenting at Davos

Paulo J: It’s quite interesting, given how even in a high-interest-rate environment and all of these different economic uncertainties, with a business model that works, you can really find the right partners to grow this business. 

And to wrap things up for this first part, I wanted to move into our make or break corner actually and dive a little bit deeper into your own personal journey, trying to achieve all this from the Series A to Series B leg of AwanTunai’s journey. What has been the biggest make or break moment throughout these past two years that you can share with us?

Shilpa: I think the break moment was just after I joined AwanTunai, which is the tech winter.

So as I had mentioned earlier, I was the first CFO AwanTunai ever had. So obviously, the first couple of months were about getting the financials ready, streamlining the financial reporting process. 

I had to review the entire finance function and get the financials ready. By the time we were ready to go to the market, it was the tech winter, and it [has been a] very long, cold tech winter. 

This part was the “break”, but it forced me to go through a lot of introspection, not just personally, but for AwanTunai, which is investing time in reviewing processes, reviewing systems, getting the right talent, really building up the model to see if this is something investors will buy into. 

It was a long process. I think the moment, obviously, in addition to closing Series B with world-class investors in these times, I think one of the “make” moments was that I was invited earlier this year to speak at Davos at the World Economic Forum, and we were recognized as the most impactful startup in the world. 

And I think what we are doing is really changing lives and bringing prosperity to Indonesia. So we are building the next wave of financial inclusion in Indonesia, which will hopefully be a textbook example for financial inclusion globally.

Paulo J: And on that note, if you guys want to hear more about her experience at Davos, tune into part two coming out next week. In the meantime, thanks so much for tuning in. We’ll see you guys in the next part of our conversation.