Fintechs, factoring firms, banks eye cash-strapped SMEs in Asia
Asia's small and medium-sized enterprises (SMEs) are facing challenges in finding sources of financing when experiencing a shortage of cash. In a bid to cater to the burgeoning demand for liquidity, banks, factoring companies and fintechs are all eyeing SMEs in need of cash.
“The challenge is the amount of liquidity in the market. The question then is how you distribute that liquidity,” says Richard Carter, CEO Europe & Asia at Bibby Financial Services, a UK-based financial services provider, in an interview with The Asset. “In some countries, banks are coming back to SMEs because they cannot get the volume or the value of their funding targets.”
Among all Asian jurisdictions, Hong Kong and Singapore have seen an increasing appetite among SMEs for factoring as an efficient and timely working capital solution. Amid a stark decline in factoring volumes in China and Asia, Hong Kong and Singapore still recorded a year-on-year growth-rate of 28% and 4% in 2016, respectively, according to preliminary statistics released by Factors Chain International.
“Factoring products have evolved over the years,” Alan Wong, managing director at Bibby Financial Services tells The Asset. “Many corporate banking customers have also sought factoring as one of the ways to raise working capital and provide off-balance sheet financing, in order to make their balance sheet looks stronger and better.”
In China, leading fintech companies have started to finance SMEs through supply chain finance programmes. Ant Financial, JD Finance and Suning Finance are active in directly providing supply chain finance services. JD Finance has served over 100,000 corporates, most of which are SMEs, with supply chain finance solutions for financing amounting to 250 billion yuan.
“As an e-commerce platform, we hope to serve more traditional corporates. From advertisement and marketing, we will embed our service in their procurement process and create more synergy from the collaboration,” says William Fang, enterprise sourcing and procurement business director at 1688.com, a B2B platform under Alibaba, in an interview with The Asset.
Amid pressure from the emerging new economy, traditional transaction banks are catching up in offering new supply chain finance solutions. China Merchants Bank launched its Smart Supply Chain Finance 4.0 programme. In 2016, working with Alibaba, China Merchants Bank introduced a B2B bills pool service, bridging the financing gap for SMEs.
“Alibaba can make payment in two seconds, which is much quicker than us,” says an executive at a leading European bank. “We make payment in two days. We are not on the same level.”
Compared to traditional bank loans or collateral loans, factoring or supply chain finance relies on the receivables quality and the business’ sustainability instead of the debtor’s financials.
Letters of credit have long been a mainstream of trade finance facilities. Yet, with evolving financial innovation, SMEs began to show growing interest in other types of working capital solutions. “When people talk about trade, they talk less about letters of credit nowadays,” says Jackey Chu, managing director of Bibby Financial Services. “More and more people are asking the open account terms.”
SMEs are still the driving force of the economic growth in this region. According to Asia Pacific Economic Cooperation (APEC), SMEs account for over 97% of all enterprises and employ over half of the workforce across APEC economies in 2016.
“The market is big enough for different companies to find their own niche and co-exist,” says Wong.
7 Jul 2017