Indonesian “online distressed solutions” startup Amalan launched in Malaysia, it said in a written statement today.
The expansion is a response to the need for debt management in Malaysia, where consumer debts are mounting. Defaulted or near defaulted loans add up to almost USD 15 billion in the country — second in ASEAN only to Indonesia, where it’s approximately USD 20 billion, Amalan CEO Arne Hartmann told KrASIA.
If traditional collection methods fail, lenders can either write off the loan or enter into a negotiation process with the borrower to get back at least part of it.
Amalan mediates between borrowers and lenders in this situation by generating a restructuring plan. It takes into account all of the borrower’s loans and restructures the debt balance and monthly installments to an affordable level.
The problem is that banks, collection agencies, and online lenders can only see what’s owed to them, Hartmann says. “They don’t see the other loans. Maybe the issue is not with their loan, it’s because the borrower has prioritized paying off another loan because their debt collectors are more aggressive.”
By weighing in all loans and creating transparency, Amalan can come up with better and more realistic repayment scenarios.
The proliferation of online lenders across Southeast Asia in recent years has worsened the consumer debt problem. Hartmann says that some borrowers who are already in danger of defaulting on one loan can take online loans to repay the minimum fees, but end up defaulting on those too.
Recognizing this as a growing issue, the Indonesian Financial Services Authority (OJK) has created the new “online distressed solutions” category in its regulatory sandbox. Amalan is the first and, so far, the only startup in this category.
Amalan has settled 1,500 cases since its founding and about 2,500 incoming requests per month, says Hartmann.
It’s currently shifting from a consulting-heavy business model to one where some of the processes are automated. For example, the initial interview is done via chatbot instead of a real person. This works well and is uncomplicated, Hartmann explains because it’s a structured interview where interviewees just give simple responses similar to filling out a form.
Over time, Amalan wants to continue automating processes so that one trained consultant can work with many clients but still maintain a good relationship and create trust.
“Our business is about trust. The most difficult cases are the ones where people want to repay their loans but are very embarrassed about the situation. They pay until they have nothing left, then they come to us,” Hartmann says. He advises borrowers who are in danger of not being able to make payments to seek help fast. ” You need to have something to negotiate with.”
Amalan uses a success fee model and does not charge an upfront fee. Borrowers pay after a restructuring plan has been signed off by all sides. The fee is 25% of the amount of savings generated through the restructuring. Hartmann advises borrowers to stay away from debt management advisors who ask for an upfront fee because there’s a possibility that they will not follow through with their promise.
Once credit scoring systems in countries like Indonesia and Malaysia improve, along with better social security systems and healthcare, loan defaults should become less of a problem. However, there’s “no perfect situation with 100% loan performance,” Hartmann says.”The lending market is growing so fast, even if we settle 2 billion a year, which would be quite an achievement, this would just keep the debt burden the size that it is now.”
Amalan’s goal is to reach a preventive stage, where it can predict potential defaults before they become a real problem, and it plans to become a partner for banks who can refer clients that have taken on loans.
With reporting from Nadine Freischlad
Editor: Khamila Mulia