HSBC’s US$1 billion ASEAN Growth Fund targets “new economy” businesses that are ready for expansion. On its list of borrowers? Indonesia-based eFishery.

Historically risk-averse when it comes to loans, banks have started dipping their toes in lending to startups. But “high-profile cases” like eFishery – which is suffering from a fraud scandal – are “likely to prompt a knee-jerk retightening of lending” in the near term, says Willie Tanoto, a senior director at Fitch Ratings.

Aside from HSBC, the embattled aquatech startup also counts DBS and OCBC as creditors. On the whole, eFishery has secured a total of US$77 million in publicly disclosed bank loans over the past few years.

Tanoto notes that eFishery’s issues aren’t going to lead to “a complete dry-up of bank funding” for startups. The Indonesian firm did state that it has repaid all its loans to these banks, and Mona Monika of DBS Indonesia confirmed to Tech in Asia that the bank “has no exposure to eFishery.”

But just as the aquatech startup’s fall led to calls for more oversight into how tech startups use their capital, banks may also reassess their approach.

Tech in Asia has also reached out to OCBC and HSBC Indonesia. The former declined to comment, while the latter did not respond.

Why bank loans and startups don’t always match

EFishery is not DBS’ only startup borrower. It has also provided loans to chicken startup Chickin and automotive firm Broom.

Meanwhile, HSBC’s ASEAN Growth Fund has also lent money to the likes of Carro. In a launch announcement, the bank said that this fund targets startups that are established, have cash flow, and are in expansion mode.

Signing ceremony for eFishery’s loan from HSBC Indonesia / Photo credit: eFishery

From the outside, eFishery might have checked all the boxes. But in reality, a draft report by FTI Consulting found that eFishery actually suffered a US$157 million loss from January to September 2024.

This figure contradicts the company’s external report, which claimed it made a US$16 million profit in the same timeframe. The company had also overstated its revenue by nearly US$600 million for the period.

See also: Embattled unicorn eFishery accelerates mass layoffs

The scandal reiterates the challenges for banks to lend to startups. The two parties, for instance, may view risk and returns differently. And because startups are private companies, monitoring performance can be difficult too.

Limits to due diligence?