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ESCAPING the valley of death.


Many SMEs are stuck in the 'valley of death'; ready to expand their business and operations, but unable to find sufficient financing to fuel their growth. With most all conventional providers of finance requiring a small business to offer collateral for financing, the challenge appears to be more acute when it comes to online-based businesses which tend to not have the physical assets required to back up a loan.

What alternative funding options are there for SMEs in the region?

Despite their importance to the growth of the economy, small and medium- sized enterprises [SMEs] face a number of hurdles when seeking finance. The International Finance Corporation [IFC] estimates that the current SME funding gap in global emerging markets is more than $2 trillion, and approximately $260 billion in MENA. This considerable funding gap between the demand and supply of capital has driven a critical need for alternative finance solutions to fuel growth in this underserved sector of the economy. Two solutions that are rapidly gaining popularity due to their attractive cost, accessibility, and flexibility, are equity crowdfunding and peer-to-peer [P2P] finance.

Whereas equity crowdfunding involves selling part of a business to investors via a crowdfunding website, meaning that the business owner ends up owning a smaller share of their business, P2P finance uses the internet as a platform to reach hundreds or even thousands of potential investors, providing businesses with faster access to lower-cost, debt-based finance.

Beehive is the first P2P finance platform in the Middle East, offering investors direct access to the growth of carefully-selected, creditworthy SMEs. Since late 2014 the company has channeled more than AED 12 million in finance to more than 25 SMEs in the UAE, helping them to pay off existing debt, invest in new technologies, and expand to different markets.

What traditional funding options are available for SMEs in the region?

In the past, SMEs in the Middle East would turn to family and friends for finance, but as the region's financial institutions developed, businesses have increasingly started to approach traditional providers of finance, such as banks, instead. Despite this trend, a 2015 MEED survey found that 49 per cent of SME owners in the UAE continue to turn to loved ones as a central means of acquiring finance, whilst in comparison just 41 per cent turn to banks, and 10 per cent turn to other sources such as private sources, angel investors, and credit cards and savings.

However, following the financial crisis in 2008, banks have tightened their credit assessment criteria and as a result SMEs are often rejected or face unaffordable high interest rates when applying for finance. Banks are also increasingly focusing on financing larger companies, which are far more profitable to lend money to, and due to their large size and administrational processes, the majority of banks are unable to provide SMEs with quick or flexible access to finance.

We consider Beehive to be a lender of first resort, for businesses that may well get loans from the bank, but which see the advantages of working with us. Compared to conventional sources, Beehive provides SMEs with cheaper, quicker and more flexible access to finance.

What are the benefits and drawbacks of lending to the SME sector for both alternative funding and traditional funding?

SMEs are the backbone of the global economy, representing almost 92 per cent of the total number of companies in the UAE, and providing more than 86 per cent of jobs in the private sector. They drive innovation by identifying niche gaps in the market and turning these ideas into revolutionary business models.

Both alternative and traditional funding models are able to contribute to the growth of the economy by financing the SME sector. Beehive is a facilitator that enables businesses to secure the funding they need by creating the organisational framework and infrastructure required for community and financial support to materialise.

Whilst traditional funding sources such as banks find it less profitable to lend to SMEs, Beehive applies the innovative technology of crowdfunding to eliminate the cost and complexity of conventional finance, directly connecting smart investors with creditworthy businesses to build mutually beneficial partnerships for growth.

Businesses without physical assets often have a hard time finding funding, how can these businesses find a viable way of expanding?

A lot of traditional credit assessment focuses on a company's credit history, rather than looking ahead at its future potential. This creates considerable problems for SMEs that haven't been around for very long, or technology companies without many physical assets.

Alternative finance options such as Beehive also run proprietary, rigorous credit assessments supported by robust third party on site verification. However, they adopt a more flexible model which looks at quantitative aspects such as an SMEs' ability to pay, and qualitative aspects, such as their willingness to pay. This means examining the company's management team, relevant sector expertise and performance to date. Not only is their financial strength and payment history reviewed by external auditors, but the company's commitment and industry benchmark is examined closely, with verification from external parties such as credit reference agencies and their stakeholders via social media platforms.

The SME sector contributes hugely to most of the economies in the Middle East, particularly the GCC, how can the region enable better and more diverse SME funding?

The UAE financial markets have improved in their sophistication and depth, and have been significantly advanced by new kinds of financial technology. Companies like Beehive are revolutionising the SME funding model by directly connecting investors with creditworthy businesses to build mutually beneficial partnerships for growth. The region can enable better and more diverse SME funding by supporting the growth of free-market initiatives like P2P financing, which directly connect the demand and supply of capital.

What SMEs has your company funded and how have you seen them grow?

Since late 2014, Beehive has channelled more than AED 12 million in finance to more than 30 SMEs in the UAE, helping them to pay off existing debt, invest in new technologies, and expand to different markets. These businesses span all sectors of the economy, including IT services, food wholesalers, management consultants and manufacturers.

One of the most recent businesses to list on the Beehive platform was a digital media agency, LMTD. They came to Beehive seeking working capital finance related to newly signed contracts that allowed them to accelerate their growth.

Another example was The Box, a Dubai SME100 listed company that provides self-storage services in the MENA region. When asked about his experience, Wadih Haddad, the founder of The Box, said, "Beehive examines the people behind the business, as well as the business itself. Their due diligence gave me complete confidence to invest in other businesses on the platform myself." He is now thinking of consolidating all of his bank relationships with Beehive.

The UAE financial markets have improved in their sophistication and depth, and have been significantly advanced by new kinds of financial technology.


Peer-to-peer financing is when investors lend money to unrelated individuals through an intermediary platform, such as a bank, traditional financing company, angel investment group, or specially created peer-to-peer financing company. The lending often takes place online and is unsecured, with interest rates set by the lenders or by the intermediary company.

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Date:Sep 28, 2015
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