As the economy continues to gain momentum in the UAE, small and medium-sized enterprises (SME’s) have managed to account for 95% of all businesses in Dubai. And peer-to-peer financing, which is the practice of connecting individual lenders with credit-worthy businesses, has just been introduced to the region, making the process of financing more streamlined and effective.
A panel discussion on this subject was held at Capital Club, Dubai’s premier private City Club and member of the ENSHAA group of companies, on March 9, 2015. It was led by three high-profile members of the financial, digital and legal communities: Rick Pudner, Chairman of Beehive Group DMCC, Dany El Eid, Founder of pixelbug, and Patrick Rogers, Lawyer at Jones Day. Capital Club Member and Founder of Envestors MENA, David Moleshead, moderated the panel.
Beehive Group DMCC, UAE’s first online peer-to-peer marketplace, saw an opportunity for a digital financing platform in the region when it realised that the government sought to increase its support of SMEs and give them alternate methods of financing. Customarily, companies turn to banks for their business request, however SMEs often find that peer-to-peer financing is quicker, more flexible and more profitable. By allowing individuals to invest in the grassroots of the UAE economy, all parties involved benefit. Rick Pudner stated, “[Beehive] offers SMEs a really efficient turnaround time in terms of time-to-market, and very efficient pricing. The savings that we’ve seen on the platform so far have been quite remarkable from traditional bank financing”.
Dany El Eid, who in 2012 created tech startup, pixelbug, with the aim of sharing innovative digital ideas with blue-chip multinationals, highlighted the pros of the lending platform, stating that the benefits are more cost effective financing, the chance to be part of something constructive, and the ease of access to those who are a part of it. This method of financing is most prevalent in the UK, US and Canada – the UK model being the one Beehive bases itself on. Rick Pudner stated, “In areas like this where there is limited regulation, you have to set up as robustly as you can – we set up Beehive under the FCA type structures that operate out of the UK. In terms of protecting investors’ money, we have a watertight setup.” Having spent 18 months analysing the market and making sure his platform adequately answers the needs of companies in the region, Pudner is confident in Beehive’s ability to thrive.
In terms of his own company’s needs, Dany El Eid stated, “As a business owner, my priority is to make sure we have a healthy cash flow. On the entrepreneur side, we have a gap called the “Valley of Death”. That’s a very critical gap…about 80% of startups disappear. That’s where we feel that Beehive was able to secure us quick access to capital and give us more breathing space while we raise more long term investment from venture capitals.”
In line with Dany El Eid’s comments, one of the most noteworthy points of the panel was that Beehive is a first-resort financing platform for companies. Rick Pudner explained, “This isn’t subprime lending – we want companies to go to Beehive before they go anywhere else.” He also clarified that Beehive is not a platform targeted at financing startups from ground zero, emphasizing its role of financing to established companies with good credit. Beehive prides itself on a very thorough credit process, using over 150 data points that primarily focus on the ability of a company to repay its cash flow. Currently, Beehive has 13 companies on the platform, over one thousand investors, and has provided nearly one million US dollars.
When asked what role the government should play, Patrick Rogers said that in the UK, the government backs banks to boost the SME sector. The UAE government will likely follow suit, as SMEs are the drivers of the economy and the government is beginning to notice the massive peer-to-peer financing gap in the region. On this topic, Rogers stated, “The overarching concern on the downside is that the governments in the region could come in with a ham-fisted approach on regulatory funding, but I don’t see that happening”. He explained that once major lenders in the UAE start getting more of a feel of what Beehive is doing, they will want to put something similar in place. All speakers commented that the banking community’s reception of peer-to-peer financing will be positive and that it will become a popular method in the region.