UniversityA look at First Circle and its impact on the country’s financial industry
A look at First Circle and its impact on the country’s financial industry
March 5, 2017
March 5, 2017

Last February 17 to 19, DLSU hosted Startup Weekend Manila, a three-day conference and contest that brought together established and aspiring startups and companies to help young entrepreneurs jump-start their ideas. One of the various startups and enterprises present in the event was First Circle, a financial technology company joined by former The LaSallian Managing Editor and First Circle Vice President for External Relations Benedict Carandang.

First Circle is a Singapore-based company that is into the business of lending to Small and Medium Enterprises (SME). They have recently expanded to the Philippines, but as of press time, their operations are limited to Metro Manila.

Photo courtesy of First Circle

Photo courtesy of First Circle

The challenges in SME funding

SMEs are central to the Philippine economy, comprising an estimated 99 percent of the country’s GDP. Though their performance is crucial to national growth, the sector continues to be hindered by the tedious and time-consuming process of acquiring capital. SME owners tend to turn to traditional financing sources like banks, which take a minimum of 30 days to approve a loan application, and an additional two to three days to release the funds. In most cases, borrowers are also unable to apply for refinancing after acquiring a loan in the past.

Some loans may also require collateral from the applicant in exchange for a better interest rate and faster application approval. On the other hand, should the borrower be unable to pay, the lender is also entitled to take the collateral, sell it, and be able to regain their losses from the loan.

Overall, this system poses a big problem for SMEs, because the SME owner has to put additional assets on the line to secure the needed funding for the business. Moreover, the system limits the SMEs from pursuing opportunities already at hand.

Changing the financial status quo

First Circle is a startup that aims to solve these problems. According to Carandang, First Circle allows SMEs to secure a business loan within just two to three days. “We use different data and analytics to analyze a particular business, so it’s a no-collateral loan kind of business, giving mostly short-term loans for three to six months,” Carandang explains.

The main concept for First Circle came about when Carandang and his team were assessing common financial problems experienced by SMEs. Due to the challenges in SME funding in the country, Carandang asserts that SMEs are unable to take advantage of the vast opportunities. “[When this happens], who do you borrow from first? From your family, your friends–your first circle. That’s why we named it as First Circle.”

In terms of the startup’s key partners, these include several Philippine e-commerce sites such as Lazada, Zalora, Go Negosyo, and PhilExport, among others. “With Lazada, for example, if you are a merchant there, Lazada keeps your money for at least 15 to 30 days after you sell your product,” he adds. “[After this], you would need capital for your expansion to buy more in order to sell more.”

Lazada also shares its sales records with First Circle. “This helps us analyze the credit score or worthiness of a particular borrower,” he explains. A small business with a two-year track record can borrow from P200,000 to P1 Million, usually in a span of three to six months.

The concept works by using financial technology algorithms to calculate the risks and evaluate credit worthiness of a borrower faster than a regular bank would. This allows First Circle to process the applications within two to three days, as opposed to the longer processing time of banks. Additionally, all these processes are done online. The technology was developed by First Circle Chief Technology Officer Tony Ennis, who was formerly a part of 100 Minds and co-organizer of various technology events in Europe and Hong Kong.

Issues with credit transparency

Like other startups, First Circle also encountered its own set of hurdles upon entering the startup scene. “The initial problem here in the Philippines is basically that there is no credit scoring,” Carandang shares. Most of the data that the banks get are from credit cards or typical loan borrowers. Oftentimes, the banks do not share credit data, which makes it a big challenge for First Circle.

Fortunately, the national government has created the Credit Information Corporation, which is trying to get and combine all of the different data sources to contribute and share credit information.

“We’re one of those companies who contribute to the Credit Information Corporation, and what we’re trying to address now basically is how to combine all data sources and use it to be able to analyze and give proper credit scoring if you are an eligible borrower,” Carandang states.

Widening horizons

The Singapore-based company chose the Philippines for its initial launch in order to test the feasibility of their technology and set-up, primarily their site visits to the loan applicants. Since First Circle provides no-collateral loans, the site visits act as a security measure to ensure that the applicants receive a loan tailored to their needs and are capable of committing to the terms of the loan.

In addition to site visits, First Circle’s existing partnerships also allow it to establish a network with trusted potential applicants who recognize the value of the funding they receive. “Remember, when one borrower runs away with the money that we lent to them, it takes away good capital that we can lend to other borrowers,” Carandang emphasizes.

The local startup scene has only started to gain ground in recent years and Carandang hopes that more people become encouraged to explore the industry. “[If] you want to make an impact in an industry that’s still growing, I would suggest that you enter the startup world. It’s a good way for you to build your resume and not be stuck in a traditional way of doing things,” he advises.

Carandang also shares that there is nothing wrong with entering the corporate world if that is how you see yourself as your pathway or career.” A traditional business could give you the skill set to jump to the startup world in the future. There’s no right or wrong answer–it’s just really your personality,” he concludes.