Standing at US$1.5 trillion, the trade finance gap reported in 2016 by the Asian Development Bank (ADB) threatens economic growth and stifles job creation as businesses struggle to find suitable financing routes to support their products/services. According to information from the World Bank, 70% of all micro, small and medium-sized enterprises in emerging markets lack access to credit.
Nevertheless, technological solutions are on the horizon to solve this issue with several platforms in Asia looking to add clarity around matters pertaining to companies in need of capital. Peer-to-peer (P2P) lenders, for instance, are slowly establishing themselves as an alternative source of financing for some companies. Although P2P activities in China has been undermined by issues surrounding fraud, other markets such as Indonesia have put forward guidelines to regulate the industry.
For example, Investree, a Jakarta-based P2P lender, connects regular retail consumers with companies such as e-commerce marketplaces for players looking for loans. The P2P lender charges a platform fee of 3-5% depending on the loan grade granted to each application.
Other emerging solutions include private investment platforms which connect businesses with accredited professional investors such as family offices or high-net worth individuals. Platforms such as Singapore-based Fundnel for example look to connect these groups together helping companies gather capital for specific projects. Currently the platform has funded 25 deals with an average deal size of US$3.2 million.
Account receivable financing platforms likewise are looking to make an impact on companies. Enabling companies to be paid ahead of schedule, receivable financing otherwise known as invoice discounting allows companies to improve their working capital flow and speed up the expansion of their respective businesses. Already in markets such as Hong Kong, we have seen several of these platforms such as Qupital and Velotrade take centre stage as a potential financing revenue for companies.
In fact, Qupital was the first company in the Hong Kong supported by Alibaba's Entrepreneurs Fund, while Velotrade was the first receivables finance platform in Hong Kong to get the SFC (Securities and Futures Commission) approval to provide alternative investment solutions to institutional investors.
The Velotrade model is to attract sizeable companies to discount a decent slice of receivables. The minimum receivable is US$50,000, Gianluca Pizzituti, CEO and co-founder of Velotrade reveals.
"Banks here in Hong Kong require at least three years of audited financials it doesn't matter if you are a good company which is selling to very large debtors. We assess the transaction and look at the creditworthiness of the buyer," says Pizzituti.
Banks are, however, starting to reposition some of their businesses to focus on smaller companies. For example, several banks have started offering supplier finance/reverse factoring solutions for companies allowing buyers the ability to extend favorable credit terms out to their most important suppliers.