As the Emirates’ economy continues to grow, small and medium enterprises account for more than 90 per cent of all businesses in the country.
So there is nothing surprising if SME lending platforms are the latest fad in the financial landscape of the emirate. Well, if these new platforms’ challenge is to better banks when it comes to serving small enterprises, peer-to-peer (P2P) lending firms have well-crafted strategies to take on established banks.
Rick Pudner, chairman of Beehive Group, the UAE’s first online P2P lending platform offering new funding alternatives for SMEs, is sure that his firm is set to go great guns. His target market: The 300,000-plus SME businesses in the UAE.
Beehive’s platform offers a marketplace that directly connects established businesses with investors so that SMEs get faster access to lower-cost finance and investors get better returns.
Beehive enables funding solutions for established SME businesses seeking finances between AED100,000 and AED500,000 for three years. Investors can spend anything from AED100 into each business listed on the platform and receive monthly repayments at target rates ranging from eight to 20 per cent per annum.
Currently, Pudner is busy charting the expansion plans of Beehive, which started six months back, along with Craig Moore, founder and CEO of Beehive. According to the company more than 1,000 people have registered to become investors since its official launch in November 2014.
Beehive’s expansion includes launching the platform in other parts of the region and introducing a Shari’a-compliant model.
“We are planning to look at the platform in other countries in the region and in Asia. The GCC makes more sense because of the similar sort of business models across the region and the currency peg. We are launching a shari’a model in the next couple of weeks and that will open it up again to Islamic investors, Pudner told AMEinfo in an exclusive interview.
Rick Pudner is not a strange name in the UAE financial turf. He was the former Group CEO of Emirates NBD and moved into the peer-to-peer lending industry after 33 years in the commercial banking industry.
TAKING ON BANKS
Having been a skilful banker, Pudner has been quick in positioning Beehive as a preferred lender for SMEs compared to banks.
According to Pudner, the main advantage of Beehive over bank lending is the speed of turnaround. Small enterprises usually face difficulties in getting funds from banks, whose requirements and slower pace of processing could result in significant funding gaps for SMEs.
“If a small-enterprise owner can submit documents for the loan we can give feedback in a week on whether the loan request can go on the platform or not,” he says. “Beehive is not a lender of last resort. We are a lender of the first resort, we expect companies to come to us first rather than approach banks. I have significant banking experience and have seen SMEs waiting for a week or months to get an answer for a credit request.”
He makes it very clear that Beehive is entirely different from banks when it comes to identifying a potential SME worthy of being in the P2P platform. “We are looking at SMEs which have reached a level of success. I think the challenge always remains for smaller businesses who have to immediately start raising capital.”
“If you look at the several stakeholders of Beehive, you get to see that the SMEs get more effective and efficient pricing, the investors get a chance to make very good money that will be sitting in a bank account doing nothing and the economic environment gets an added boost. So it’s a win-win situation,” he adds.
Beehive’s latest service, invoice financing, helps SMEs to manage cash flow by closing the gap between the moment a business issues an invoice and when it receives the payment. “By leveraging the P2P funding platform, businesses will be able to list invoices that are due within 60-120 days and receive financing within 24 to 48 hours at rates starting from 0.75 per cent per month,” says Pudner.
RIDING THE STORM
Nevertheless, the P2P lending business has its own challenges, starting from ensuring that SMEs that come to the platform have good quality credits to building volumes over the network to achieve the scale.
“The challenge is to build up volumes over the network to get the scale. The new invoice-financing module should help us in creating a lot of loan and transactions volumes. We are sure the value of loans over the platform will rise significantly over the next few months,” says Pudner.
“We are forecasting non-performing loans (NPLs) within the business plan. The NPLs are zero now but you are bound to get one or two. Even some credit-worthy SMEs end up non-performing. We have 20 SMEs registered on the platform. We have completed a number of loans, the activity rate is increasing,” he adds.
Pudner seems to have clearly charted the Beehive’s future roadmap. Besides regional expansion and new products, there will be more value added products coming on to the platform. “The key for me is that as we grow, there will be more value-added products coming on to the platform, it could be advice to SMEs, helping them with smoothening registrations, lawyers, accountant, etc.”
It’s interesting to see how the former Emirates NBD CEO uses his banking experience in his new role. “Banking experience certainly helps. As a banker, it’s very different. P2P lending is a technology engine. The experience that I have gained from the banking industry has showed me there is demand for alternative sources of financing. This form of lending is disruptive to traditional forms of lending,” says Pudner.