Business Lending In Asia — A Significant Investment Opportunity. Part 3

Alternative lending is a new opportunity for investors. The markets in the US, UK and China are maturing, but the Asia Pacific region (excl China) is an emerging market. Within this market, business lending to SMEs is a significant investment opportunity.

This article gives detailed information to support this contention.

Part 1. ALTERNATIVE LENDING — WHAT IS THE OPPORTUNITY?

  • Meeting the unmet demand for credit to SMEs
  • Lending companies, SMEs and investors

Part 2. STATUS OF ALTERNATIVE LENDING IN ASIA

  • Providing financial inclusion through mobile technology
  • Market growth
  • Growth of business lending
  • Balance sheet business lending

Part 3. SOUTH EAST ASIA AS AN INVESTMENT OPPORTUNITY

Part 4. WISHFINANCE: A NEW INVESTMENT OPPORTUNITY IN SINGAPORE

The alternative lending market in South East Asia is still relatively small, but seems likely to follow the growth pattern of China and India. Indicators are that SE Asia, and particularly Singapore, are attractive destinations for investment into business lending:

Economic growth prospects

  • According to the October 2017 World Bank update, economic growth for Asia Pacific (excl China) in 2017/2018 is predicted to 5.1%, up from 4.9% in 2016.
  • Economists from OCBC Bank and CIMB Bank are predicting that Singapore will achieve its best economic performance in four years

Countries are supportive of FinTechs

  • Singapore has set aside $225m to develop and support local FinTechs, rules regarding unsecured loans have been eased, and innovation is being supported.
  • Malaysia and Thailand have introduced financial guidelines for peer to peer lending.
  • Singapore FinTechs such as MoolahSense (for P2B) and Funding Society (for crowdfunding) have been granted Capital Services Markets licenses.
  • The Korean Financial Services Commission, the Monetary Authority of Singapore and the UK’s Financial Conduct Authority have signed agreements regarding cooperation in the FinTech space.

The focus of funding is on business

  • From 2015 to 2016, business lending grew from 46% of market volume to 57%
  • P2B volume increased from 20% to 53%
  • Invoice trading decreased from 30% to 5%
  • Unlike the rest of Asia Pacific, equity-based crowdfunding has remained strong in SE Asia, growing from $7,5m to $56m, most of it in Singapore.

Singapore is the market leader in the SE Asia region

  • Singapore accounts for three quarters of the alternative finance market volume in the region.

Gaps in the market:

  • There seems to be opportunity for balance sheet lenders. There has been some activity in balance sheet models for property lending and consumer lending. However, balance sheet for business lending seems to be untapped.

Examples of established FinTech companies for business lending are shown in the following table, but there is probably space for more.

Examples of Fintech companies involved with business lending

Examples of Fintech companies involved with business lending

Some interesting facts show the strength of the investment opportunity:

  • Funding Societies have crowdfunded loans of $72m. They have made 1174 loans to SMEs, and, to date, have had a default rate of only 1.6%
  • CapitalMatch has funded loans worth approx $41m. It offers APR of 15–25%, with monthly principal and interest payments.
  • MoolahSense is licensed to allow retail investors, high net worth individuals and private funds access to the new asset category of SME loans. Investors can participate with as little as $750. To date it has helped to raise $14,2m for over 100 small companies.
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