Acudeen is bridging the disconnected pieces within the Philippine economy through a clever financial service solution. SME’s bring life to the economy, yet struggle with survival themselves Third world countries have a lot to look forward to with blockchain technology. Through this disruption, the current financial services system is being remodeled into a structure more favorable and more inclusive. With blockchain technology, the new world will be one where financial services and benefits are not a luxury for those who already have the money—financial services can become a basic right. The Philippines is one of the countries that can substantially benefit from this value. However, financial services have specific requirements that make them inaccessible to several businesses that may not have enough assets or credit history to qualify for business loans. Ironically, these are the same businesses that need these financial services the most—micro, small and medium-sized enterprises (MSMEs), which make up a huge chunk of the country’s economy. A 2014 report by SGV pointed out that SME’s constitute 99.6% of total registered enterprises in the country, making up 35% of the GDP and employing around 70% of the total Philippine work force. “SMEs are the lifeblood of our country’s economy. They stimulate economic activity, generate employment, prompt innovation, heighten competition and contribute largely to the country’s progress. However, Philippine SMEs continue to face serious difficulties and challenges in relation to their existence, development and competitiveness,” they wrote. “The reality is that most SMEs start small and generally remain small until liquidation or bankruptcy. Many research studies report that access to financing remains one of the most critical, if not the foremost, constraint facing Philippine SMEs.” Acudeen’s system for helping SME’s stay alive, and thrive Blockchain-based financial service start-up Acudeen recognized this unmet need early on. We interviewed the company’s co-founder and Chief Development Officer, Yacine Derradji, to gain a better understanding on how they are impacting the small but significant players within the economy. The company has developed a rather clever solution to link the disconnected pieces of the broken economy chain—allowing businesses to get immediate funds ahead of time by selling their postdated invoices to investors willing to buy them. “Acudeen is a two-sided online marketplace for invoice discounting, incorporated in Singapore, and running its operations in Philippines and Myanmar,” Derradji wrote in an email to CoinGeek. “Acudeen has developed a unique platform where businesses can sell their receivables at a discounted price to a network of investors enabling them to receive funds ahead of time.” The company eliminates several hindrances to exchanges of time-delayed assets, enabling individuals and businesses to transact directly, without the need for too much intervention like the current financial system. To further explain how the business runs, Derradji lists down the three key players within the ecosystem they have built: “A. The seller aims to obtain the best possible price for their goods or services and to receive payment for these as soon as possible. Allowing the buyer to delay payment of the invoices makes the seller more competitive but can also create periodic cash-flow issues for the seller. B. The buyer wants to obtain the lowest possible price for their purchase and to delay invoice payment for as long as possible to optimize the use of their working capital. The risk to the buyer is that they may not have sufficient cash available to pay the invoices on delivery or shortly thereafter. The long term risk for the buyer is to see their supply chain getting weaker and their suppliers going bankrupt one after another, and finally to have an offering decrease and increase of the prices while less choices. C. Investors are currently not able to directly invest in invoice financing without establishing an invoice financing business. In the traditional invoice financing model, the risk is that the investor does not have a direct relationship with the buyer. This exposes the investor to a considerable risk of the invoice not being paid as agreed, or being disputed. To connect the three and address each of their needs, Acudeen’s system works as follows: A. Through our platform we will connect the seller directly with individual and institutional investors who will finance the seller’s invoices at 90% of the face value. B. Once the seller has access to invoice financing, the seller is in a position to give the buyer more time to pay for their invoices, thereby optimizing the buyer’s cash-flow position. C. Through our platform, investors will be granted access to an investment product that is for the most part currently only available to the banks and finance companies. Each investor will be able to invest in a number of loan fragments from a large number of diverse businesses across various industry sectors,” Derradji wrote. To ensure the authenticity of invoices, Acudeen requires that the buyer—the one who will eventually pay the full amount of an invoice to the investor, is a member of the platform and can vouch for its validity. “Unlike in the traditional invoice financing model, on our platform the buyer will be part of the eco-system and will be asked to verify that the invoice is genuine and is due and payable. Invoices that are not verified by the buyer as genuine, due and payable may not be funded.” Impact With the number of MSME’s within the Philippine economy, Acudeen definitely targeted a huge market. Given this fact, I can only assume that the impact of such a service would be huge. True enough, Derradji says over $6 million have been financed over their platform—a considerable amount considering that the company was conceived only two years ago. “Over the past two years, we transacted more than $6M worth of invoices and funded a wide range of industries such as BPOs, recruitment, advertising, retail, technology, pharmaceutical etc. In a country where MSMEs represent more than 70% of the employment market, Acudeen is definitely more than just a factoring business or an alternative investment to HMWI but it has a real impact investment and social purpose in creating directly or indirectly benefits to different stakeholders in the supply chain environment,” Derradji says. Future expansions Although Acudeen is currently operating only in the Philippines and Myanmar, Derradji confirms that there are plans to expand beyond these territories, stating that the market for invoice financing amounts to figures that are hard to ignore. “Based on our roadmap and post-ICO vision, we are planning to expand first across ASEAN region before looking at other potential markets in Asia and beyond. We are in Myanmar since January and are looking to enter Indonesia and Vietnam before end of 2019,” Derradji wrote. “Asian market in invoice financing itself represents more than $600 billion, and Southeast Asia alone—$200 billion.” Derradji adds that Acudeen’s work in the Philippines is far from finished, as it still has to reach the rest of the major islands where their services are needed. “We should not also forget the local market where other regions are yet to be explored and where we already established business relationships (Visayas or Midanao),” he said. Recently, the company also launched the AssetChain, a “decentralised inventory and marketplace for movable assets.” Derradji explains that “movable assets” include AR financing, inventory financing, warehouse receipts, letters of credit, and patents. “But we can be more imaginative and dig deeper, for example in the import/export financing model we will be able to finance TIME (pre-shipment financing and post-shipment financing).” “We are looking to do PO financing (which are not considered as a security). This is an advance and may not be for the entire amount of the supplies, but it will cover a large portion of it. In some cases, companies can qualify for 100% financing. We will then collect the invoice from the end customer. Thanks to our future ecosystem that we will be building post-ICO - The AssetChain: we will be able to finance other supply chain related products such as warehouse receipt, inventory receivables, letter of credit (import/export factoring model) or even patents (intellectual property factoring model),” he explains. How about individuals, not businesses, in need? In the Philippines, not everyone has the luxury to build their own companies. Yet even individuals who are employed by other companies or freelancing professionals are not exempt from immediate needs. In fact, if the MSME market is huge, the market for individuals in urgent need of advancing their funds might be even bigger. Although at the moment, figures on this demographic may be hard to verify, since sudden monetary needs of individuals are not really documented. Obviously, this demographic could really benefit from a similar service. But it would be foolish not to discount the fact that the risk here is undoubtedly much, much higher. I asked Derradji if they are considering extending their services to this population. “This is an interesting question, we have thought about sole-traders or freelancers and found out that will be difficult to assess the uncertainty and also the profitability for our investors (buy-side). Why? Two reasons: A. First of all, freelancers works on project based, so this is more factoring solution for project management such as construction. But the amount here and pricing is way too low. Furthermore, most of the freelancers works for web agencies, marketing or design agencies and their employers are the ones experiencing cash-flow issues as they pay their employees (freelancers) before their clients. B. Secondly, it will be more difficult to assess the credit worthiness of individuals since they are not registered and even more difficult within emerging countries where data is barely updated. However, innovative solutions such as credit scoring based on social media or behaviors can be potential third-party or strategic partner to overcome this challenge.” Yet despite the risks, Acudeen says they are looking into it. “But YES, because LIMITLESS is part of our corporate culture and the current-future environment will allow us to do it (with blockchain also). Acudeen is indeed thinking of jumping onto freelance and sole trade financing. Just an idea: if we arrive to plug-in Freelancer.com into our future blockchain empowered platform (The AssetChain) through ERP/Cloud Accounting software integration, we will have a better risk-profitability analysis case per case and finally will be able to provide creative financing to the right individuals,” he said.