IOUpay’s latest strategic partnership is set to deliver market-leading consumer finance products to Malaysian federal civil servants across various government ministries, with mitigated risk a sweet cherry on the deal.

Malaysia-focused fintech IOUpay (ASX:IOU) has announced its wholly-owned subsidiary, IOU Pay (Asia) Sdn Bhd (IOUpay Asia) has entered a new strategic partnership with I.Destinasi Sdn Bhd (IDSB).

Preparation is now underway for the rollout of the first product initiative under the agreement to newly hired Malaysian Federal Civil Servants (FCSs) across education and health sectors, and other key government agencies.

The launch of the strategic partnership involving a market-first product initiative aimed at capturing newly hired federal government employees highlights the strategic value of IOU’s investment in IDSB, which it announced in September 2021.

The company recently announced revised tranche two completion terms which will see it with a total acquisition of 34% in IDSB at completion.

The first project between IDSB and IOU will be a new bridging loan product tailored for and targeting newly employed FCSs.

The company said the project will be revenue accretive to both IOUpay and IDSB in two ways including:

  • IOU to receive margin on short term bridging loans offered to the low risk, bonded civil servant initial customer category.
  • IDSB with pre-committed repayment of the bridging loan through a pre-approved 10-year IDSB-facilitated term loan funded by partner banks. IDSB will receive increased revenues through upfront agency fees for each new customer and ongoing loan management fees on the refinanced 10-year loans.

IOU said the first project is a local market-first with a new short-term bridging finance product across a large target customer base, initially focused on bonded civil servants, with scope to increase this to all federal civil servants more generally.


Solid annual revenue potential

Based on a 10% penetration of this estimated opportunity for illustrative purposes, IOU said total transaction values could be as much as RM20 million (~A$6.6million) each year in new bridging loan volume and RM200 million (~A$65.6million) in IDSB term loans.

Through the collaboration, IDSB can recruit into its longer term finance offerings large numbers of new civil servants who have a requirement for IOUpay’s short term finance.

There are more than 1.7 million civil servants in the Malaysian Government’s workforce.

Each year approximately 20,000 people start employment as an FCS in the education and health sectors.

A significant proportion of the new workers must commit to service for an eight-year period (bonded civil servants) to obtain government sponsorship and financial assistance for their tertiary education.

IOU said the FCS portfolios of prospective customers represent prime target customers for the company given their stable, long-term employment and IDSB’s ability to use the AG-Code Licence to mitigate credit risk.

IOUpay gains access to large numbers of high credit quality customers with a unique product offering, can significantly upscale its monthly transaction volumes and provides a committed deal pipeline for long term finance by IDSB.


Talks to secure wholesale funding

IOU will fund new bridging loans out of current BNPL capital allocation and is in the process of talks to secure a special purpose wholesale funding facility with a leading Malaysian Non-Bank Financial Institution (NBFI).

IOUpay said the NBFI is dedicated to providing 100% of the capital required for the bridging loan product as the first project under the IDSB strategic partnership.

Discussions with the NBFI are advancing with a view to funding the first project and, if successful, further projects in the strategic partnership.

IOU said the value of establishing wholesale funding facilities initiated through this collaboration extends well beyond the initial IDSB strategic initiatives, with potential for increasingly larger scale, lower cost capital to meet the Company’s sustainable and profitable growth objectives across all of its customer portfolios.


Shariah-compliant funding

The two companies are focused on identifying areas in which they can cooperate and achieve synergy in their offerings, including Shariah-compliant personal financing to FCSs.

IOU announced in July it had been awarded a Certification of Shariah Compliance by the independent, global Shariah advisory firm, Tawafuq Consultancy.

IDSB and IOU will offer Shariah-compliant personal financing to FCS employees in a salary  deduction scheme under IDSB’s licence to use the Accountant General Code for salary deduction, and the provision of loan management services including payment collections for its bank customers.

Other strategic focuses include creating short-term products using IOUpay’s platform, existing product suite, and ability to create new products in coordination with IDSB and third-party funders, including partner banks and NBFIs.

The bridging loan product initiative as the first project under the new strategic partnership reflects IOU’s continued consumer finance diversification, focusing on short term credit for low risk customers, and leveraging its competitive strengths to capture a greater share of customer lifetime value.


This article was developed in collaboration with IOUpay, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.