In an economic world in which financing is difficult for small and medium enterprises (SMEs), Validus, an artificial intelligence (AI)-powered SME financing platform, aims to make a difference by lowering the threshold for these businesses to receive micro loans, while easing the complexity and enhancing the efficiency and speed of the process of doing so.

The platform, established in 2015 in Singapore, has been replicating its success in the city-state elsewhere in Asia for almost a decade now, countering the long-perceived notion that SMEs are a high-risk segment to bankroll.

Motivated by SMEs’ struggle to obtain loans from banks, which involved a protracted evaluation of their financial status and credibility, Validus rolled out a model that balances SMEs’ need for timely funding with those of financiers’ for minimized risk.

Given the uncertainties associated with SMEs’ ability to repay, Validus deploys an AI-backed credit scoring model that is trained to take into account traditional sources of information, including financial statements, which SMEs aren’t often able to readily prepare, as well as alternative information on various aspects collected from multinational corporations.

“We look at both traditional and non-traditional information,” explains Milena Naitoh, the platform’s group head of corporate development and capital markets. “Along with our historical lending data, this approach helps us to identify trends and keep recalibrating our assessment framework.

“This could be things like how long they [the SMEs] have been working with certain corporates, how much are they supplying or buying from them – anything that we can use to triangulate their cash flow on a more dynamic basis than what a bank may be able to do.

Making the real-time data visible, Validus digs deeper into SMEs’ financial health with help from their long-standing partners, recalibrating the accuracy of the borrower’s ability to cover the debt and, ultimately, expediting the underwriting decision. This risk model, capable of processing several thousand loans each month, makes credit assessment possible in a couple of minutes, in contrast to the far lengthier processes used by the banks.

The edge of delivering quick financing has enabled Validus to extend its footprint to economies with high capital demand. To date, its key markets straddle Southeast Asia, and the platform is well-established in Vietnam, Indonesia and Thailand. Validus total volume of funds disbursed has expanded fives times since 2021 to S$5.11 billion. It disbursed S$1 billion from 2015 to July 2021, according to data on its website.

Before clinching success in other emerging markets, the platform was developed and fine-tuned during a crucial period of accommodating increasingly intense regulatory requirements in Singapore. The high standards of licensing in Singapore equipped the company with the necessary knowledge and skills to grapple with regulations and the nuanced frameworks present in other SME financing markets.

Still, Validus is mindful of the need to build trust in foreign markets, which motivates the platform to partner with local big names and set up local teams to boost the confidence of overseas authorities when dealing with the platform.

“Many times, when we enter a new market, we are one of the first to either apply for or get the licence,” Naitoh shares. “We work a lot with the local regulators to show what we did in Singapore, and try to get the same standards aligned there while the regulations are being developed. It’s always helpful to have something that follows what we’re familiar with.”

Apart from the platform’s skill at assimilating to various regulatory frameworks, it has earned trust in new markets by innovating and leveraging their strengths to adapt to a fickle and challenging economic cycle that has wiped out many of its rivals.

“Definitely, there’s always the temptation to ride the wave and do something that everyone else is doing,” Naitoh notes, “but sometimes it’s not the best move because we’ve seen so many new products that have fallen out of favour quickly.”  

With the aim of securing its position in the current challenging economic climate, Validus avoids business segments that don’t fall within its scope, for instance, retail and real estate lending.

“We are always very clear on our strategy of being an SME-focused business and always working with accredited investors,” Naitoh points out. “By keeping our focus on these segments and on where we’re good at operating, we don’t get caught up in any trends or waves that might hurt us in the long run.”

Well-versed in data usage and risk examination, the platform aims to continue on its journey of innovating credit assessment and revamping the SME user experience. While plenty of fintech companies climb on the bandwagon to vie for a larger share in the market, Validus’ approach embodies the importance of focusing on core strengths vital to establishing a long-standing position in markets and an economy going through a difficult stage.