A business can make credit easier to obtain without making its customers financially stronger. For an investor, that distinction deserves more attention than it usually gets.
In an earlier essay on my personal blog, I reflected on conversations with small-business owners in the Philippines who were willing to pay for earlier access to cash. Late customer payments and difficulties with billing were part of the problem. The experience left me interested in the incentives behind a financing business, as well as the demand for its product.
For IJK, the question is what a company helps its customer become. A financing platform may have an attractive growth story. I would also want to know whether the borrower’s underlying business becomes more resilient as that platform grows.
Start with the reason cash is missing
Consider a hypothetical supplier that has completed an order but must pay wages before its customer settles the invoice. The supplier may have a sound business and a genuine timing problem. Financing could help it accept the next order.
Now consider a business that loses money on each order and borrows repeatedly to keep operating. More convenient credit may postpone the difficult conversation rather than improve the business.
The immediate demand for cash can look similar. The investment cases are different. Before celebrating the size of a financing gap, I would want to understand what created it and how the customer expects to repay.
Look at the process around the loan
A useful diligence exercise would follow an order from acceptance to payment. Who confirms delivery? What causes an invoice to be rejected? Is the customer slow to approve it, or is the supplier slow to submit the right information? How much of the business depends on one buyer?
Those details can reveal opportunities beyond lending. Clearer records, better billing and a more consistent collections process may reduce the cash tied up in avoidable delays. Financing and operational improvement can work together.
This is where an investor’s work meets management’s daily work. The opportunity may be a financial product. It may also be a better way of running the business that product serves.
Repeat borrowing needs interpretation
A customer returning every month could be evidence of a useful service. It could also mean the customer has no realistic way to leave. A renewal rate on its own will not tell us which.
I would look at what happens across successive cycles: whether payments become more manageable, whether complaints are resolved and whether the customer can explain the total amount owed. The provider’s own economics matter too. What is left after funding costs, losses, servicing and collections?
There should be room for a business to earn a return from a valuable service. The concern is a model whose attractive margins depend on customers remaining confused, repeatedly refinancing or being unable to compare alternatives.
Clarity is part of the product
The price a customer understands should include the costs they will actually pay. Approval speed and an attractive headline charge are incomplete measures of usefulness.
CGAP’s work on responsible digital credit treats transparency, suitability and the borrower’s full journey—including repayment and complaints—as connected questions. That is a useful perspective for investors as well as providers.
It is also important to avoid treating every shortage of money as a failure of financial literacy. Irregular earnings, late-paying customers and an unexpected expense can create real pressure. Better information helps people make decisions; it does not, by itself, fix every income or payment problem.
A model has to fit the market
For a cross-border investor, a successful product in one country is a starting point for investigation elsewhere. Buyer behaviour, the evidence available for assessing a business, servicing arrangements and local requirements may differ.
I would want to see how the proposed model works with those conditions, rather than assume a distribution channel or scoring method can simply be copied. The local team’s understanding of customers belongs in the investment case.
This is an IJK angle I find compelling: connecting capital with a close understanding of how businesses operate. The aim is to identify a service customers value and a provider whose earnings can remain healthy as those customers improve.
Access to credit can be an important beginning. A stronger borrower, with a better-run business and more choices, is a more worthwhile destination.
Adapted for IJK Capital Partners from Some things are not meant to be fixed on Kenny Ng’s personal blog.