SMEs account for only 5% of total bank lending in the UAE

• SMEs key to the growth and diversification of the UAE economy

The withdrawal of major banks from trade finance and especially in the SMEs space is creating extraordinary challenges and opportunities, according to Finverity, the UK cross-border supply chain finance platform. Finverity today announced a step change collaboration with the Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM) – Abu Dhabi’s international financial centre.

The collaboration will develop a proof-of-concept to improve the transparency and trustworthiness of UAE SMEs’ credit profiles to enable faster access and on better credit terms to working capital finance.

The SME sector is key to the growth and diversification of the UAE economy. Although local SMEs represent 95% of companies in the country and 86% of the private sector’s workforce, they account for only 5% of total bank lending in the UAE. While UAE SMEs’ share of domestic credit leads other countries in the region, it is still well below the levels in developed markets.

UAE SMEs face two key challenges when seeking trade and working capital financing. Firstly, banks face high onboarding and processing costs when handling a loan application, making lending to larger firms relatively more profitable. Secondly, banks lack sufficient data on SMEs to efficiently evaluate their credit risk.

As a result, banks either refrain from lending or charge higher rates of interest to compensate for the perceived risk. These challenges sharply reduce access to finance for SMEs and even for mid-caps, when compared to global multinationals or national leaders.

The collaboration has grown out of the selection of Finverity as a finalist in the FinTech Abu Dhabi Innovation Challenge 2020, which was announced during the 4th FinTech Abu Dhabi Festival, co-hosted by the Central Bank of the United Arab Emirates. Finverity was selected as the finalist for problem statement number 6, which sought solutions to address the “creation and validation of financial information, robust future cash flow predictions and sustainable business model strategies for small and medium enterprises (SMEs), so that we can help build trusted and transparent credit profiles that provide the banks and other financiers a greater level of confidence of their credit-worthiness”.

“3 clicks” to access supply chain finance and get invoices paid upfront

The collaboration addresses the above challenges via a programme designed to collect real-time financial data from the accounting packages of SMEs on the Finverity platform and build comprehensive credit profiles. Real-time financial data will boost visibility into the financial position of participating SMEs, supplementing KYC, trade and invoice data already captured by the Finverity platform. By

participating, SMEs will gain access to Finverity’s “3 clicks” supply chain finance facility, whereby SMEs will receive upfront payment at a discount from a funder for invoices due later from some of the larger local buyers. The buyer then pays the invoice at maturity to the respective funder, providing an investment return to the funder. This enables SMEs fast access to working capital that is otherwise trapped in payment terms, while data is being gathered and their credit profiles become comprehensive enough for direct lending.

This collaboration will make supply chain financing available to even the smallest of UAE SMEs in a tech-enabled, easy-access format. Finverity’s highly automated process for rolling out supply chain finance facilities and its fully guided and KYC-enabled digital onboarding screens for suppliers were key decision-making factors in launching the collaboration.

The UAE’s SME sector has in the past found it harder to engage with SCF (supply chain finance) programmes as it was economically unviable for banks to engage with smaller suppliers and midcap buyers due to high onboarding and operational costs relative to profit. The Finverity platform enables funders to fund smaller supply chain finance programs at scale, thanks to a high level of automation that leads to significantly lower operational costs and better risk mitigation.

Slava Oganezov, CEO of Finverity, commented: “The SME sector is the backbone and engine of sustained economic growth in many countries and a key player in global trade, but it is also the sector most in need of accessing financing and releasing working capital trapped in supply chains. We are seeing very strong interest among UAE companies in the US$50m – 1,000m revenue bracket who want to access supply chain finance and are actively engaged in matching them to funders on our platform”.

Slava Oganezov, CEO of Finverity, added: “The UAE government’s active push towards greater data transparency and a stronger regulatory regime makes it highly attractive for funders on the Finverity platform seeking to fund supply chain finance offering a good risk/return ratio. We are delighted to be endorsed by ADGM and the UAE Central Bank as the UAE is one of the leading trade finance and fintech hubs in developed emerging markets with strong growth potential”.

Wai Lum Kwok, Senior Executive Director, FSRA, Abu Dhabi Global Market, commented: “SMEs are core contributors to the UAE’s economy and will play an important role in the economy’s future growth and diversification. We welcome scalable solutions that improve financing conditions for SMEs, including those that reduce the processing costs of financing through automation. The availability of high-quality credit risk data on UAE SMEs will help attract a substantially larger pool of funding capital and remove obstacles to their growth”.

About Finverity

Finverity was founded in London in 2017, with the goal of helping to fix the global trade finance gap.

The Finverity digital ecosystem provides the technology, working capital and expertise to make trade and supply chain finance (SCF) actually work for businesses, banks and NBFIs. The digital ecosystem comprises of two complementary offerings:

Finverity Capital, tailored trade and SCF solutions, with two core products:

1. Finverity CapitalAccess empowers ambitious privately-owned businesses to seamlessly access working capital and reach their next level of growth.

2. Finverity CapitalInvest enables funding partners to deploy capital into quality trade assets securely, easily and at scale.

FinverityOS (SaaS), the end-to-end operating system designed to digitally transform trade and SCF operations, client experience and revenue generation capabilities at local and regional banks and NBFIs.

Finverity is growing: In 2022, it increased revenues by 15x, doubled its headcount and initiated expansion into three new international offices. Finverity is backed by 5 world-class VCs and serves clients in 11 countries across the Middle East, Africa and Central & Eastern Europe.

About supply chain finance

Supply chain finance, also known as reverse factoring or payables financing, is a financial technique, whereby a buyer, in most cases considerably larger than the underlying suppliers, partners up with a funder and/or technology provider to offer access to instantaneous cash against invoices raised by those suppliers to them.

Such facilities allow suppliers to receive early payments after the goods/ services have been received and the invoices confirmed by the buyer at an attractive cost of capital. The funder/ technology provider then pays those invoices immediately to suppliers and receives repayment directly from the buyer at maturity.

The buyer at the same time can extend its payment terms and optimise its own working capital, as suppliers are now getting paid immediately. Finverity’s platform automates a large portion of the tasks needed to run these types of facilities at scale, thereby enabling the participation of smaller companies and a larger pool of alternative lenders.

About Abu Dhabi Global Market (ADGM)

Abu Dhabi Global Market (ADGM), an international financial centre (IFC) located in the capital city of the United Arab Emirates, opened for business on 21 October 2015. Established by a UAE Federal Decree as a broad-based financial centre, ADGM augments Abu Dhabi’s position as a global trade and business hub serving as a strategic link between the growing economies of the Middle East, Africa and South Asia and the rest of the world.

ADGM’s strategy is anchored by Abu Dhabi’s key strengths panning over private banking, wealth management, asset management, derivatives and commodities trading, financial innovation, sustainability and more. Comprising three independent authorities: ADGM Courts, the Financial Services Regulatory Authority and the Registration Authority, ADGM as an IFC governs the entire 114 hectares (1.14 sqkm) of Al Maryah Island, which is a designated financial free zone.

It enables registered financial and non-financial institutions, companies and entities to operate, innovate and succeed within an international regulatory framework based on common law. Since its inception, ADGM has been awarded the “Financial Centre of the Year (MENA)” for four consecutive years for its initiatives and contributions to the financial and capital markets industry in the region.*

For more details on ADGM, please visit www.adgm.com or follow us on Twitter and Instagram: @adglobalmarket and LinkedIn: @Abu Dhabi Global Market (ADGM).

* Source: The Global Investor Middle East and North Africa (MENA) Awards