Why We Invested: BukuWarung
By Dan Bertoli
Across Indonesia’s 60 million mom-and-pop shops (or “Warungs”), tiny credit transactions of under $1 are ubiquitous. Coffee, Indomee (noodles), tissues and the like — items that often cost fifty cents or less — form the bulk of these small-credit transactions, which are, quite literally, indispensable to the people and the economy of Indonesia: a recent survey of nearly 1,000 Warungs revealed that over 90% of them have outstanding credit to customers in material amounts.
But Warungs are more than places of commerce; they are places where neighbors meet, gossip, opine, and weave the local social fabric. For instance, Warungs often host viewings of sporting events on TV (or phones), receive packages for their customers, and even deliver these packages to homes for community members that are unable to pick them up on their own. Community dwellers refer to Warung owners as Aunties or Uncles (“Tante” or “Om”), reflecting the long-standing trust between Warungs and their communities. Unsurprisingly, a Warung owner is likely to be the best judge of a resident’s credit worthiness, and the extension of credit is often a natural service that Warungs provide, especially for small items like coffee.
Such buy-now-pay-later sales are in strong demand. The average monthly income in Indonesia is $300, and so a meal at a Warung can easily account for 1–2% of monthly income. Thus, most of these folks manage their cashflow tightly, and take advantage of credit at any opportunity.
Warungs often hate these credit transactions as much as their customers love them. Most Micro, Small or Medium Enterprises (“MSMEs”) such as Warungs do not do structured record keeping at all — or if they do, it’s with basic pen and paper — so Warung owners have to keep a constantly changing abacus of loans outstanding in their minds. Furthermore, chasing repayments is even harder than tracking loans; asking to be repaid is culturally taboo, and disputes often arise about how much credit is outstanding, among other challenges. Add to this the additional stress that credit transactions contribute to working capital needs, and you begin to understand the double-edged nature of small-credit transactions for Warung owners — they may be the heartbeat of the Warung economy, but they can likewise cause heart attacks.
These challenges are not limited to bookkeeping and credit sales. MSMEs have been widely excluded from the financial system of legacy banks. Limited data on MSMEs (including a historical misconception about their creditworthiness) has made banks widely ignore them. Our data indicates that only 30% of those who want a loan to start a small business actually get one; savings remains the prime source of capital for a new business. In turn, only half of Warung owners deposit the earnings from their business at banks; the other half rely on keeping cash at home.
E-payments pose another challenge (and cost) for Warungs. Existing digital payment methods are expensive and slow compared to other countries in Asia. And unlike places such as India — which has developed a cheap, easy, and omnipresent digital payment system (UPI) — e-payments in Indonesia remain troublesome and expensive. Domestic bank transfers in Indonesia cost $0.40 per transaction, wallet top-ups $0.20 to $0.30. After receiving money from e-wallets, it takes at least a day (and often more) to access funds. While the penetration of wallets has increased significantly in recent years, many of the restrictions and costs for e-wallets and digital transfers have remained unchanged. Warung owners can only dream of the benefits enjoyed by several of India’s “kiranas” (kiranas are India’s equivalent to Warungs): seamless, cheap payments; interoperability among banks, wallets, and UPI instruments; a lack of e-payment fees and faster settlement.
More broadly speaking, Warungs and Micro-SMEs in Indonesia have also been neglected by the digital economy and tech community. Ecosystem players, investors, and entrepreneurs have long favored companies that target consumers or corporations in tier-1 cities. This is surprising given the importance of MSMEs to Indonesia’s economy: MSMEs account for 60% of the country’s GDP. MSMEs also seem to have high readiness to adopt digital products, particularly in areas of FinTech. Our data shows that 81% of micro-SMEs have made transfers through digital wallets for their business, even though no integrated solution exists. 40% of them even use e-wallets at least 5 times a week. Yet their business remains cash-based, with 70% of Warungs receiving cash as their predominant method of payment.
We at Quona believe in the transformative potential that digital solutions present to small and micro-businesses in Indonesia and for financial inclusion.
That’s what got us excited about investing in BukuWarung. As active investors in startups serving MSMEs across emerging markets, Quona’s current portfolio includes 19 companies in the MSME space in over 10 countries across Asia, Africa, and Latin America.
The most recent addition to our portfolio, BukuWarung is addressing many of the problems faced by Warungs and other types of MSMEs. BukuWarung started as an accounting app to help MSMEs manage their sales and expenses as well as cash and credit transactions. By using BukuWarung’s app, merchants receive up to 3x faster repayments from credits they have extended and see increased cash flow due to automatic payment reminders. The app tracks all transactions including credit, expenses and sales, while helping merchants get cash flow visibility and track profits through business reports.
BukuWarung’s co-founders, Chinmay and Abhinay, come from micro-merchant families and have spent several years building merchant-focused fintech products and monetization at Grab, Carousell and Kudo. BukuWarung’s team has executed fast, while maintaining a strong focus on serving its MSMEs. Earlier this month, BukuWarung was the first accounting app in Indonesia to launch digital payment solutions. The company has maintained its market leadership and served over 1,000,000 merchants while growing 70% Month on Month. In the coming quarters, BukuWarung aims to provide platform solutions including loans, savings, and insurance.
BukuWarung is one of the few solutions directly tailored to meet the needs of Warung owners with the technology that they have. The app is small at 6mb (the lowest among accounting apps in Indonesia), can run on low-end devices (from Android 4), and offers an intuitive, easy user interface, while caching all data offline to save mobile data costs and backup data when used in areas with spotty networks.
We are excited to work with BukuWarung to drive financial inclusion forward for Indonesia’s MSMEs, and we continue to actively look for more investments in this space.
Disclaimer: Quona portfolio companies were selected for profiles based on objective, non-performance-based criteria for the purpose of illustrating the types of investment made by Quona funds and their impacts. These profiles are being provided for illustrative purposes only, in order to provide examples of the idea generation, research, and thought process of Quona investment teams. No representation is made as to whether or if the investment ideas represented in these profiles have been or will be profitable. It should not be assumed that Quona will be able to identify similar investment opportunities in the future, or that any such opportunities will be profitable. The above statements include the opinions of the Firm and are for illustrative purposes only. There is no assurance that any trends depicted or objectives described in Quona profiles will continue or become successful.