Fintech companies such as Incomlend play a vital role in providing alternative lending solutions for SMEs, especially during the pandemic.
Many SMEs often go unfinanced, and they get caught in a spiral where they do not get the finance they require from the larger, traditional banks. The main reason is due to the SMEs not being able to prove creditworthiness. Worse still, these SMEs would end up self-financing, which limits their ability to grow their business.
Today, we see many SMEs breaking these financial barriers to access alternative funding solutions. SMEs should consider the non-recourse approach where Incomlend provides off-balance-sheet financing to them, taking away loans’ burden. SMEs are effectively selling their invoice and obtaining finance without risk.
Why is diversifying investment important?
As an investor, it’s a basic finance principle that diversifying one’s portfolio reduces the risk, hence increasing the potential returns and stabilising the results.
What are your predictions around the future of alternative lending?
There are two ways to look at the future of alternative lending: we can view it from the alternative lender perspective or the alternative finance users.
The alternative lender provides them access to a new asset class, hence an opportunity to diversify their portfolio. While technology is on their side, security risks remain high. Fraudsters continue to be creative with their methods to defraud paper invoices.
For alternative finance users such as SMEs, it’s alternative access to financing other than the traditional banks’ typical application. The SMEs are diversifying the access to funding and thus their reliance on banks.
Do you have any personal insights into the challenges faced by SMEs amid the pandemic crisis?
We encourage SMEs to look into the non-recourse approach where Incomlend provides off-balance-sheet financing to them, taking away a loan’s heavy burden. SMEs are effectively selling their invoice and obtaining finance without risk.
We have seen companies across various sectors during 2020 with a weakened financial situation that will furthermore reduce their support that they’re getting from the banks in their businesses. A non-recourse way is an added value for them.
Incomlend will be launching, at the end of March, a new product to assess the quality of the buyer to resolve some of these issues. The initial launch will be in Europe and North America – based on the database we currently have. Asia will be next, but countries such as Myanmar will be challenging as hard access to digital info is different for them from the rest of the world.
Amidst so much change, what do you predict the outlook is for the coming decade?
One thing is for sure: with climate change, new pandemics will become increasingly likely.
The banks will still be pursuing the same path they have been walking for the last few years, reducing their trade finance exposure. Whether it is fintech or other alternative funding sources, they are here to stay, and they will only grow stronger.
The COVID-19 pandemic will slow growth for the next several years, and recovery will depend on the availability and widespread distribution of vaccines in the market and, of course, how effectively the current vaccines can tackle the new variants. The new variants have been said to make the virus more infectious and potentially more deadly.
Other long-term trends will also affect the economy, from extreme climate, which might trigger other forms of the virus, rising health care costs, growing debt in developed countries due to the pandemic, and recurring bubbles.