Why would Akulaku “restructure” loans?

On the surface, Akulaku is a very successful fintech company, raising rounds after rounds of investment, including a reported US$100m round led by Ant Financial last year.

Akulaku started as a remittance service for migrant workers in Hong Kong, before pivoting to online ecommerce cum paylater/instalment for Indonesia. It has since, through acquisition, picked up a multifinance licence, and a banking licence.

So it came as a surprise that Mintos (a p2p loan marketplace in Europe) yesterday suspended Akulaku’s loans on its primary and secondary markets. Mintos explained that it was due to “late pending payments”, in other words, default.

While William Li, Akulaku’s founder, explained the situation in a letter to Mintos investors, one thing is puzzling:

The amount of defaulted payments is €4,737,494 (US$5.1 million) – not a big sum for Akulaku. Why would it risk its reputation (it will continue to need investors for its loans) for such a small sum?

Our friends and we thought of a few possibilities:

The currency fluctuations

As William Li mentioned in his email, Indonesian Rupiah has weakened significantly. As a result, the loans, which are denominated in euros, would run at a loss for Akulaku.

However, it is highly unlikely that Akulaku will take the route of defaulting because of this. They have many tools at their disposal to control such exposure.

Failure to restructure the loans with the lenders

This is possible as the platform has many retail investors, and it is not always straight forward to settle with everyone without going public. However, we think it is unlikely because again it is not worth it for Akulaku – the damage of default is higher than any savings or temporary relief secured.

Real cashflow issues

That leaves to the last possibility – the company is really facing dangerous cashflow issues. It might have too much exposure to the consumer loans that are not repaid – beyond what it can cover with its own cash.

Anyways, the current situation is beyond probably the expecation of the strictest (and surviving) risk managers of an otherwise aggressive fintech platform.

Hope everyone will live through this tough period.