belinda siegers
IPMI International Business School
Amelia Naim Indrajaya
Keep this story going! Share below!
TNF stands for Trust Network Finance. It’s a finance innovation, made for financing micro entrepreneur, to help them grow, to become bigger and independent entrepreneur. From Allianz’s perspective, TNF is a long time developed idea. It is relevant with Allianz’s core business in micro. For the micro business, Allianz has been selling micro insurance product to its business partner such as rural banks, cooperatives, and credit union. They see their clients who’ve been covered by the micro insurance, did not much developed to be bigger and more independent entrepreneurs. It was because to grow bigger they only get loan with interest and collateral, and they were hassled by the strict repayment schedule. That is why, beyond the conventional loan, Allianz come up with micro model finance innovation, brings the concept of micro equity, which is totally different with the conventional loan.
Equity equals to shares. The concept herein is similar with venture capital. Allianz provides financing to the investee not in form of loan, but in form of equity within the investee’s business. For example, Mr. X has already had a small business of coffee and he is a barista as well. He wants to develop the business to be bigger coffee shop or café like Starbuck. As businessman, Mr. X surely needs working capital. Instead of obtaining conventional loan from banks, Allianz as an investor can finance Mr. X in form of equity. Mr. X can use the fund to develop its business. Developing the business can be in forms of fixing the product, differentiation, product diversification, or maybe diversification of the serving, in which all of it to become like a mini Starbuck. If the value of the business grows, Allianz would also feels profiting. Why? Because the value that Allianz invested since the beginning at Mr. X’s business would also grows.
Allianz’s exit strategy as investor, Allianz will sell its share in Mr. X’s business, when Mr. X is already independent, ready to be released. The share porting of Allianz will be sold, at the increased value.
What differentiates between TNF and conventional loan is Allianz involves in the business. It could be for its marketing, giving referral to other investor or maybe to banks. So, that is the basic concept of this equity.
TNF is very simple program. The target is the street vendors, small entrepreneurs. The amount invested would be between one to two million Rupiah. The financing is open for many kind of entrepreneur: the micro entrepreneur who’s been settling for above three years, start-ups with one or two year experience, or the start-up with idea only like seat entrepreneurs and just finished making the business plan.
The ultimate aim is for social reason, helping them fulfilling their dreams to become more successful businessmen.
TNF investment cycle is 6 months with three month grace period. Within that 6 months, Allianz will select whether or not the investee eligible for the next level. The measurement is if the investee was able to repay the investment fund within the 6 month period together with the profit sharing. The repayment period, after the 3 month grace period, can be freely chosen by the investee, whether it would be daily, weekly, monthly, or bullet payment.
Based on survey by Allianz, micro entrepreneurs will be more successful when given more flexible time to repay working capital loan. If the loan tenor is 1 month, they don’t even get to sell the product actually. They would have cash flow problem.
One of the risk management conducted by Allianz is measurement of the recovery rate. As pilot project, Allianz targeted recovery rate circa 75% whereby from 10 investee financed Allianz expected minimum 7 investee to repay. These seven successful investee will be passed to the next phase, getting bigger financing and more profit sharing. For these 7 investeeAllianz has confidence that they will grow bigger by enrolled in the next steps. One of the steps if mentoring phase. In this phase, Allianz will provide the knowledge, skill, to grow the business via mentors.
Allianz will invite mentors, i.e. successful entrepreneurs who has sufficient experience and calling to share their wisdom and experience to these newbie. What unique with this mentoring program is that they are not paid by hourly, daily, or monthly fee. Allianz will offer the share as fee, which will be offered only after the mentor has provided joint effort together with the investee to grow the business. The mentor teaches, the investee executes, Allianz evaluates the result: what still needs to add on, what to fix, what to maintain, until the business grows. The mentor and the investee will become like partnership.
So the equity within the business will be owned mostly by the investee, and small parts by the mentor and TNF. The mentor’s share is namely Sweat Equity, cause the mentor does not buy it, they provide they sweating work to finally have the equity. By having the equity, the mentor will eventually receives rewarding money.
The background of this program as people understands, these micro entrepreneurs are not bankable amid their needs of working capital for business. From Allianz’s corporate perspective, Allianz sees its business and how it’s going to grow in the future, whether or not the existing business is going to support its business in the future. Allianz Indonesia’s resources currently is 5 million micro insurance customers, which is from its total 6 million customers number almost 90%. There is potential in that number. However this 5 million customers does not proceeds as much as the remaining 1 million customers, since they are in micro business. That is why Allianz Indonesia has to create some innovation to leverage in this segment.
The one of basic principles of CSR is to having social impact, which it can be seen from many perspectives. In relation to TNF, Allianz is aiming to create employment. It is something urgently needed by this country now, whereby there are many jobless who relies their lives to be worker to someone else. In the same time, Indonesia has huge number of micro entrepreneurs, like 100 million. But they have been stuck as micro and never grows to other level, because they are too busy to pay loan installment too banks.
Allianz itself sees this TNF works enough. One of the sign is some of their investee can hire employees as marketing or production function. So the funny thing is, they are small, unbankable, but they have ability to create employment.
Allianz Indonesia enrolled TNF in OJK (Otoritas Jasa Keuangan, the Indonesian Monetary Services Authority) annual financial inclusive competition. Co-incidently last year theme was micro entrepreneurship. There were 3 categories for contestants: financial industry, general, and academic. Allianz brought provocative title: Sharia Financial Revitalised Model. Indeed TNF basic model is sharia, i.e. profit sharing, trust concept. TNF was success in that competition as runner up champion. The final judgment was judged by OJK officers, professors, financial industrial figures, etc. The first winner was Bank Negara Indonesia (BNI) and the third place was Bank Rakyat Indonesia. From all of the six winners at that time, Allianz was the only insurance company, and the remaining were banks.
Get stories of positive business innovations from around the world delivered right to your inbox.
Indra Yuliawan, Allianz - Trust Network Finance