The emergence of peer-to-peer lending in the UAE has opened up exciting and new investment opportunities for income-seeking entrepreneurs from the region. Craig Moore, CEO of Beehive explains further.
There can be no doubt that ‘Fintech’ (Financial Technology) is one of the hottest buzzwords in conversation at the moment. Thanks to the advent of technology, fintech is revolutionizing the financial services industry by providing new finance solutions and disruptive innovation. Technology is redefining the way we bank, trade stocks, lend money, and invest in companies. As consumers, it is also significantly impacting how and where we interact with service providers. The fintech revolution is rising on a global scale, impacting sectors such as payments, institutional and retail financial services and capital formation. A recent report by Accenture showed that global investment into fintech ventures reached more than USD $22 billion in 2015 with 2016 showing a strong upward growth trend. Already well-established in the US, new growth is being driven by significant investment in Asia and Europe. While fintech is still a relatively nascent sector in the UAE, exciting developments are occurring, and more importantly, there is considerable potential for growth.
A much talked about initiation to the fintech scene in the UAE is Peer-to-Peer Lending. Peer-to-Peer (P2P) lending refers to an individual or retail investors providing finance to businesses without the use of a traditional intermediary, such as a bank. Already a proven and highly successful concept in the US and Europe, global peer-to-peer lending was estimated at USD $60 billion in 2015 and is forecast to deliver USD $300 billion by 2020.
P2P platforms directly connect businesses looking for finance with an online crowd of hundreds of potential investors. Technological advances have enabled P2P lenders to deliver services and funding decisions in a faster, more efficient manner than many conventional service providers. It typically results in a drastically reduced cost and time to finance, which is good news for the 300,000 small and medium sized enterprises (SMEs) in the MENA region who struggle to secure timely and affordable business investment. Considering the USD $260 billion SME funding gap in MENA, outlined by the International Monetary Fund (IMF), it is evident that P2P lending could prove to be an important lifeline for many businesses.
The UAE needs to create an environment where financial providers and technology companies can co-exist and easily collaborate… a flexible environment based on a light regulation that provides low barriers to entry and nurtures, rather than hinders, a flourishing fintech ecosystem.
Investors can benefit from P2P lending as it provides them with a transparent investment and a regular monthly income stream. It is especially valuable for income-seeking investors during a period when interest rates are rising, and bond prices are declining. P2P lending should be thought of as an alternative investment (where an investor allocates around three to five percent of their portfolio). P2P enables them to diversify, spreading investments across several different businesses, over short to medium loan terms; so the risk is often diminished versus high ticket traditional asset classes. If required, investors can access their cash by selling loan parts to other investors on a secondary market. This kind of investment environment makes it highly accessible to a much broader investment community.
The UAE has great potential to become a fintech center within the region and is investing in developing a strong SME ecosystem with a robust support network for start-ups. To secure its place as a fintech hub, the UAE needs to create an environment where financial providers and technology companies can co-exist and easily collaborate. What is required is a flexible environment based on a light regulation that provides low barriers to entry and nurtures, rather than hinders, a flourishing fintech ecosystem. Once this is established, governments can introduce a more robust regulatory approach, which will level the playing field and create competitive benefits to all market participants. The UAE certainly has the resources and the vision to become a fintech hub, and with the right approach, a real opportunity to achieve it.