The Rise and Rise of Alternative Finance in Singapore (2017 Update)

The Rise and Rise of Alternative Finance in Singapore (2017 Update)

The global financial crisis of 2008 to 2009 saw SME’s survive the turbulent times and emerge as more resilient and dependable economic units while the larger banking titans buckled. As the markets recovered, there was an increase aversion to lending by banks. Thereby locking out many SME’s and stunting their growth.

SME’s are a vital component of Singapore’s economy they contribute to over 45% of the overall GDP and employ well over 50% of the workforce. For the economy to progress on its growth path, this lifeblood sector needed a reliable source of financing which banks were reluctant to offer. Below are some factors that contributed to the rise of alternative financing in Singapore.

Stringent Banking Terms

A vast majority of Singapore’s wealth is as a result of the direct output of SMEs. However, a recent study by the accounting firm Deloitte indicated that about 40% of local SMEs were ineligible for a bank loan.  Some of the terms laid out by banks locked out budding SMEs regardless of the status of their financials. One such rule in Singapore is; SMEs which have been operating for less than three years are directly struck out as ineligible for credit by banks. This is regardless of having healthy financials.

Such stringent banking terms contributed to the emergence of an opportunity for smaller businesses to take up and offer other more market-oriented moneylenders.

Mainstreaming the Regulatory Framework

In the olden times, moneylenders who operating outside the formal banking framework were not licensed. Besides that, were restricted to advancing loans only to relatives or through other unregulated platforms. This increased the risks and fueled the proliferation of crime and money laundry. However, presently alternative finance companies have been endorsed in the legal system and aligned to the existing regulatory framework.

This has made both entrepreneurs who seek to venture into the alternative money lending business. In addition, potential borrowers become less suspicious of each other thus enhancing trade.

Surging Demand

Alternative financing platforms such as Peer to Peer lenders are growing at record speeds due to the surging demand. For instance, in less than a year of operations, P2P lender Capital springboard transacted well over S$ 95 million on its invoice financing platform.

With a huge proportion of under served SMEs and a lucrative market in Asia’s financial hub. One could say it is only a matter of time and regulation change. Before the nearly the entire market migrates to alternative financing.

Better terms Than Banks

In March 2016, Epicentre Holdings Limited raised S$1.5 million on the P2P lending platform MoolahSense.  The funds were raised in just under ten days in tranches of S $ 500,000. The first two tranches were fully subscribed in just over 24 hours of listing while the third, was listed three days later and was fully subscribed in less than a week. Epicentre Holdings received the funding in less than a month compared with banks which would take about 90 days to release funds.

Moreover, at a nominal interest rate of 13.5 %, the MoolahSense fund platform offered perhaps a better interest rate than what banks could provide.

Also, banks do not focus on short-term lending; rather insist in long-term financing spanning at least three to five years to justify their interests.

To conclude, Singapore remains a lucrative market for alternative financing. Due to its vibrant SME sector that remains financially starved by the banks. Alternative finance is attracting diverse interest from across the world as players wait to see what regulatory decisions will be taken to enhance the health of the lending space.

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