MENA-based pioneering peer-to-peer lenders, Beehive and Liwwa, cross monumental financing milestones to drive social impact for small businesses
SME crowdfunding is going from strength to strength in the Middle-East
Those passionate about Fintech (financial technology) and social impact learned some exciting milestone achievements in the SME crowdfunding space recently. The two leading crowdfunding companies, Liwwa and Beehive, crossed a cumulative total lending since inception of USD 5 million and AED 100 million (USD 27.2 million) respectively for the first time. Beehive and Liwwa are peer-to-peer lending platforms, one of the many disruptive Fintech formats along with robo-advisory, payments systems and digital currency. This new breed of technology start-up companies attempts to use technological innovations to disrupt the way financial services are delivered. In the case of peer-to-peer lending, individual investors from the “crowd” invest directly in borrowers via the platform, completely bypassing banks and other formal financial institutions. Whereas banks rely on their deposits to lend money, in a typical peer-to-peer transaction, investors provide the debt capital directly.
What does this mean for the region and the economy?
There are two important developments from the achievements of both platforms. Firstly, far from the well-known centres of tech start-ups such as California and London, the Middle East is starting to develop its own tech hub centred on and around Dubai, facilitated by VCs and incubators like Wamda Capital, Flat6Labs, Silicon Oasis, etc. Within the niche crowdfunding business, Beehive and Liwwa are the first successful platforms in the MENA region. They take after the more established players such as Zopa in Europe and Prosper and Lending Club in the US.
Secondly, both of these platforms are addressing a major gap that affects the economy in the MENA region — the financing of SMEs. Both platforms provide a better way for SMEs to get access to capital because of pricing and efficiency advantages. On the pricing side, SMEs often face steep interest or mark-up rates. And that is if they can get financing at all, considering banks typically only finance larger corporations. It has been estimated that the SME lending gap in MENA amounts to $240 billion and almost $2 trillion globally. In terms of the process, directly connecting investors and borrowers digitally reduces the cost, complexity and long timelines that are characteristic of conventional bank lending. In fact, one of the greatest innovations of crowdfunding is the ability to automatically appraise the creditworthiness of applicants online — enabling cheaper, standardized processing as well as quick response times for SMEs.
SMEs play a pivotal role as the engines of job creation and GDP growth (Nasr and Rostom, 2013). That is why Liwwa has gone one step further than most other crowdfunding platforms. Using Leontief’s (1996) input-output model, Liwwa 1estimated that $2.9 million of Liwwa loans to SMEs in Jordan have generated 205 additional jobs, $778,948 of income and $5.78 million increase in output to the Jordanian economy. This model basically attempts to estimate the economic output potential from an increase in inputs such as capital. The multipliers used to calculate the output impact have been locally adjusted by employing the economic multipliers aggregated by Osama Al Zoubi.
The Amman-based peer-to-peer lending platform, Liwwa, was established in 2012 to help finance a variety of SME projects in Jordan. Since then, the company has grown rapidly, backed by venture capital and investors which include the Bank al Etihad and Dash Ventures. Liwwa provides Shariah-compliant cost-plus mark-up loans (known as murabaha) which provide a return of just under 10 percent, net of fees. The company has expanded out of Jordan and is also providing loans in the UAE. Operations began in March 2015 with raising $500,000 in a seed round led by Dash Ventures, Bank al Etihad and MENA Venture Investments. Since inception, it has underwritten $5,125,382.29 across 170 loans (as of July 2, 2017).
Beehive is the UAE’s first online marketplace for P2P lending. Fully authorized and regulated by the Dubai Financial Services Authority (DFSA), Beehive was formed by Craig Moore in 2014. Like Liwwa, Beehive is a pioneering a smarter financing solution for SMEs while providing a concrete alternative to investors to generate healthy returns. Rather than a fixed mark-up rate that is set when a new campaign is launched on Liwwa, Beehive lists approved business funding requests and a reverse auction is opened for up to 14 days. In that period, investors competitively bid different amounts and mark-up rates for the investment request. Because the most competitive bids are successful, the borrowing rate is reduced while investors have the opportunity to value the risk that the project brings to them. Beehive provides both conventional and Shariah-compliant financing options and became the first and only P2P lending platform to set up offices in the Dubai International Financial Centre (DIFC).
Watch this space
With an estimated global P2P market of more than $490B by 2020 and $900B by 2024, this form of Fintech will be continuing to expand rapidly. For regions like MENA, amidst considerably economic uncertainty, P2P will be even more important in providing SMEs with access to efficient and cheaper capital while enabling investors to earn better, more diversified, and alternative returns.
 World Bank and Union of Arab Banks (2014)
 World Economic Forum (2015)
 Nasr, Sahar; Rostom, Ahmed. 2013. SME Contributions to Employment, Job Creation, and Growth in the Arab World. Policy Research Working Paper;№6682. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/16897 License: CC BY 3.0 IGO.
 Source: Morgan Stanley (2015). Available at: http://www.nasdaq.com/article/the-rise-of-peertopeer-p2p-lending-cm685513.
 Source: Transparency Market Research (2016). Available at: https://globenewswire.com/news-release/2016/08/31/868470/0/en/Increasing-Small-Business-Units-to-Act-as-Building-Blocks-for-Peer-to-Peer-Lending-Market.html