Used cars are a risky biz to lend to, but Carro is banking on banks

Singaporean used car marketplace Carro made small but important investments in Bank Index and Allo Bank, likely to expand its auto-financing business. But used car financing is a high-risk market—partnering with banks may help but only if the ecosystem it’s trying to tap into finds Carro’s services equally rewarding

Used car financing is a segment embedded with risks, pushing up interest rates for the borrowers

It’s also a fiercely competitive market—58% of Indonesia’s multifinance companies are in the auto-finance sector.

The prospect of relatively cheaper funds and access to data from the banks it has invested in could help Carro retain its competitive edge

Carro’s investments could help widen the lending pool for banks, which have been reluctant to lend to such risky segments so far

Cars are perhaps among one of the most expensive purchases a person would make in their lifetime. About 70-80% of car purchases that happen in Indonesia are facilitated by loans, says an automotive industry expert at a leading consultancy. So it’s not surprising that Singapore-based used car marketplace Carro decided it wanted to own a slice, even if modest, of Indonesia’s banking segment.

Earlier this month, the seven-year-old company invested in two Indonesian banks—IDR 71.7 billion (~US$5 million) in conglomerate Chairul Tanjung-owned Allo Bank and an undisclosed amount in the SME-focused Bank Index.

However, they are both minority investments, just a fraction of what the banks actually raised.

AUTHOR

Yunindita Prasidya

Based in Indonesia, Dita is passionate about tracking the country’s growing digital economy. Her coverage is sector-agnostic—she has written about e-commerce, edtech, fintech, venture capital, and publicly-listed companies, as well as stories on careers and workplaces. She was previously a business journalist covering banking and the stock market at The Jakarta Post, Indonesia’s leading English daily.

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