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For Abhinay Peddisetty and Chinmay Chauhan, solving for millions of Indonesia’s SMEs (small and medium enterprises), which account for nearly 60 percent of the country’s GDP, and 97 percent of its domestic workforce, was no coincidence or serendipity. Their own parents have small businesses, and they understood the struggles of the sector, especially when it comes to bookkeeping and tracking finances.

But BukuWarung, a startup they co-founded in 2019, did not happen right away for the two entrepreneurs who began their careers working for various up and coming startups.

Abhinay says his journey started with a profile he read on YS about a company called ‘AdNear’, a location intelligence platform now called Near, which prompted him to reach out to the company on Facebook. He landed a job with the startup, and joined them in their efforts to expand across Southeast Asia and Hong Kong.

Another stint and a few life experiences later, he met his co-founder, Chinmay, at Carousell, a $300 million company at the time that was looking to expand across Asia. For better or worse, Carousell took a different approach in terms of growing and scaling than the duo was expecting. So, they decided to get into business for themselves and build something that could touch people’s lives in a meaningful way.

“I was travelling to Indonesia to expand the business into these markets with Carousell. Chinmay was at Grab before that where he was building for Indonesia, and he had a lot of familiarity with the market. Both of us, in general, were a lot more comfortable knowing the market, the problems, and also having a network of people that we would talk to. And that’s how we decided Indonesia would be the market we’d target,” Abhinay tells YS.

The two spent some time noodling with ideas in terms of what they wanted to build, and they decided to talk to their friends in the startup ecosystem. It was at one such meeting when everything fell into place — a corporate executive they were meeting at a small Indonesian restaurant for lunch told the proprietor he would “pay the next day, or the day after,” which prompted the former to record his dues in a physical book.

This, they knew, was characteristic of many Indonesians, especially when it came to any transactions with their neighbourhood kirana store, or frequently-visited small eateries. They also noticed that the store owners kept the records of these “dues” on a paper, and that payment pleas were made verbally.

From that, they extrapolated (and also found later on in their research) that small business owners probably record all their transactions in a similar way, or maybe not at all if the bills were settled on time.

“We were not sure though how big and deep this problem was in Indonesia. But when we actually spent those 2,3,4 months researching, we said, there are three ways to understand this problem: Is this problem across different types of business? Is this problem across different scales of business? And is this across different locations?” Abhinay recalls.

They quickly realised they had a big enough problem to solve, and the rest, as they say, is history.

What BukuWarung does?

BukuWarung is to Indonesia’s millions of SMEs what Khatabook is to India’s — it’s essentially a service that enables digital bookkeeping — capturing daily transactions of a small business, tracking arrears, and helping with invoice management, among other things.

From their extensive research across Indonesia, the founders realised that there were three ways in which merchants were essentially categorising transactions:

1. Important, so it’s on the books — which included transactions with suppliers that merchants felt compelled to write down.
2. Important, but not on books — which included pieces of paper as invoices given to merchants by suppliers or local lenders in the market.
3. Not important, so not on books — which included purchases by customers.

“For layer three, there is no intrinsic value or intrinsic motivation for the merchant to record the transaction. We have successfully captured their layer one transactions now, and we’ve also launched invoice management, which is helping us capture a lot of the layer two transactions. Layer three is where I think no player has been able to back it up, and we’re working on a potential solution, which can help us drive adoption in capturing the value of layer three transactions,” Abhinay says.

Beyond just instilling good bookkeeping practices, Abhinay and Chinmay realised standardised ledgers could give SMEs access to the banking ecosystem, especially essential products such as credit, which was lacking because banks didn’t trust small businesses enough thanks to their erroneous financial records.

The startup eventually aims to launch its own stack of financial services on top of the transactions-management tool. It has already started lending — and Abhinay says the interest it has received from its merchant community has been pretty amazing.

“While the scale is still small, the results have been promising to see, and shows us that the interest in the merchant community to accept financial services is high,” Abhinay says.

BukuWarung already has more than 6.5 million registered merchants across 750 Indonesian cities, it says. It has processed about $1.4 billion in annualised total payments volumes over the last six months and expects to do around $10 billion in annualised payments by next year.

Apart from its accounting and management service, the startup also launched Tokoko, an application that helps merchants set up their storefront online, and reach their customers digitally.

Revenue model and outlook

While most companies in the space BukuWarung operates in would charge a subscription fee, the Jakarta-based startup does not. Instead, it starts charging merchants only once they cross a certain number of payments in the hope that removing the ‘cost’ factor will encourage merchants to adopt a new system more easily.

Abhinay says the startup also wants to focus on making money through the financial services it provides, and from its digital payments offering, which merchants will readily loosen their purse strings for since they want to be open to accepting any and all sorts of payments.

In the longer run, BukuWarung, which has proved its mettle in creating an operating system for the MSME sector in Indonesia, aims to roll out other workflow-related products, and create a more robust payments infrastructure. On the lending side, it is spending time educating the supply market in underwriting credit for small and micro-merchants, so that there’s enough liquidity to go around.

“I think for us, the way we see ourselves is more on our official statement of accelerating financial success for small merchants. Being able to make these merchants successful in running their business lives, I think that would be our North Star Metric,” Abhinay says.

BukuWarung’s competitors in Indonesia include BukuKas and Jurnal, among others, although Abhinay says 60 million merchants present enough of an opportunity for various players to tap.

The startup’s investors include KhataBook’s Ravish Naresh, who came onboard after the Indian digital bookkeeping enabler pulled out of Indonesia; Goodwater Capital; Valar Ventures; Rocketship.VC; East Ventures; and Y-Combinator; among others.

So far, the company has raised $80 million over five funding rounds.