"Explosive growth" in lending volumes has helped WeLab Holdings, a Hong Kong-based fintech startup which already boasts Li Ka-shing’s Tom Group among its backers, raise $220 million from investors including Alibaba’s Hong Kong Entrepreneurs Fund.
The succesful fundraising for the company, which is tapping gargantuan demand for small loans from Chinese borrowers with no credit history, underscores strong interest in Asia's fintech innovators. But its founder and CEO declined to state whether the fundraising had pushed WeLab to unicorn status – a valuation above $1 billion.
Other investors in the Series B+ financing round included Credit Suisse and International Finance Corp (IFC), the financing unit of the World Bank, according to a statement released by the company this week.
In a phone interview with FinanceAsia, Simon Loong, founder and chief executive officer of WeLab, said the new backing took the online lender to a higher valuation than its previous round in January 2016, when it raised $160 million from backers including Malaysian sovereign wealth fund Khazanah and Dutch financial services group ING.
“We upsized the latest funding round due to frenzied demand,” Loong said. “Between 2015 and 2016, our loans volume surged by six to seven times, and there is another six times jump for the first six months of this year.”
Despite a huge pick-up in loan growth, the company’s non-performing loan ratio over a 30-day period stood at just 1-2% in June this year, thanks to its credit-risk management system, according to Loong. Industry experts say the industry average is roughly at 4-6%.
Investors seem to agree on its stringent credit control. Andi Dervishi, fintech investment group head at IFC, separately said: “WeLab has demonstrated its ability to effectively make credit decisions based on non-traditional, but otherwise reliable data, for millions of Chinese borrowers without prior credit history,”
Dervishi added Chinese consumers would benefit from improved access to credit and from building a credit history, an important step towards financial inclusion.
The number of borrowers and lenders through online platforms in China doubled to 51 million in 2016, as consumers discovered the ease of borrowing at the click of a button to buy small-ticket items such as the latest iPhone or to meet an urgent need for working capital.
The expected demand for these sorts of banking services is immense given what is happening to the Chinese economy. From just Rmb6 billion ($1 billion) in 2013, China's internet consumer market is expected to grow to Rmb3.4 trillion by 2019, as the economy's growth engine shifts from investment to domestic consumption, according to iResearch, a consulting firm.
Despite strong growth, Chinese online lending represented about only 0.5% of total social financing, a broad measure of credit, according to a report by National Internet Finance Association of China.
Loong, a former commercial banker with 15 years of experience at Standard Chartered and Citi, declined to provide further information about the valuation of his company.
WeLab, which turned its first profit this year, typically offers loans of between Rmb3,000 and Rmb5,000 to young white- and blue-collar workers, as well as rural workers across China, with interest rates of 20 to 30% over a one-year period.
WeLab raised $20 million from its Series-A round of funding in January 2015 from a group of investors that included US venture capital firm Sequoia Capital and Hong Kong tycoon Li Ka-shing’s Tom Group, a Hong Kong-listed media company that has an e-commerce joint venture with state-owned China Post Group. The latter is the parent company of Postal Savings Bank of China, which has about 500 million clients and more than 40,000 outlets across the country.
Founded in 2013, WeLab has 25 million of users in Hong Kong and China and processed $28 billion of loans through its platforms, WeLend in Hong Kong and Wolaidai in mainland China.
Like most startups, listing shares in the public market provides an exit route for its investors. As Loong put it: "We keep an eye on it, but there is no definitive timetable."