Validus AI-Backed Approach: Insights on Innovative SME Financing from The Asset Interview

In an engaging interview on July 23, The Asset spoke with Milena Naitoh, Group Head of Corporate Development and Capital Markets at Validus. During this discussion, she elaborated on Validus’ innovative approach for facilitating SME financing, emphasising the role of AI technology in streamlining the loan process and improving access to funding for small and medium enterprises across Southeast Asia.

Below are some key insights and takeaways from the interview:

In a challenging economic landscape where small and medium enterprises (SMEs) struggle to secure financing, Validus 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.

Established in 2015 in Singapore, the platform has expanded across Asia, challenging the perception that SMEs are high-risk investments. Validus addresses the difficulties SMEs face in securing bank loans, which often involve lengthy evaluations, by offering a model that meets their urgent funding needs while minimising risk for financiers. To assess repayment capability, Validus utilises an AI-driven credit scoring model that incorporates both traditional financial data and alternative information from multinational corporations, accommodating the unique challenges faced by SMEs.

“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.

“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.” (The Asset)

“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.” Naitoh adds on.

Validus capacity to offer quick financing has allowed it to grow in regions with high demand for capital. Its main markets are in Southeast Asia, with a strong presence in Vietnam, Indonesia, and Thailand. Since 2021, Validus has increased the total funds it has distributed five times, reaching S$5.11 billion. Prior to that, it had disbursed S$1 billion from its launch in 2015 until July 2021, according to the information on its website.

Before achieving success in other emerging markets, Validus was refined during a critical period of navigating strict regulatory requirements in Singapore, providing the company with the necessary knowledge to handle regulations in various SME financing markets.

Validus acknowledges the importance of establishing trust in foreign markets, which leads the platform to collaborate with local companies and develop local teams to enhance the confidence of international authorities.

“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. (The Asset)

“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 to secure its position in the current challenging economic environment, Validus steers clear of business areas outside its focus, such as 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 utilisation and risk analysis, the platform is committed to advancing its innovations in credit assessment and enhancing the SME user experience. While numerous fintech companies seek to capture a larger market share, Validus highlights the importance of focusing on core strengths, essential for establishing a long-standing presence in a challenging economic landscape.

Read this article on the Asset: https://www.theasset.com/article/51985/validus-facilitates-sme-financing-with-innovation