Alternative financing is a lifeline for SMEs under lockdown
As the UK enters another lockdown, businesses around the country - especially small companies - are fighting for their survival.
While COVID-19 rages, SME lending in the UK has tanked and liquidity has plummeted by 80% since the pandemic began.
Government-led schemes including tax deferrals and government-backed loans have helped SMEs stay alive (some continuing to trade at reduced levels, others furloughed) but cash flow problems will continue to prevail during the second confinement and beyond, as companies seek to get back to ‘normal’ trading volumes.
Funding from the incumbent banks will remain constricted, but alternate funding is available through the fintech community and can offer a lifeline for companies in most need - and companies must educate themselves about the options available.
Seek out fintech alternatives
During the crisis, equity crowdfunding sites, peer-to-peer (P2P) lending and invoice trading platforms have been successful in providing SMEs with funding solutions that use technology to offer speed, transparency and flexibility for financing that would otherwise not be available to them.
In addition, fintechs like these have been able to disperse funds with government schemes quicker than banks, because they’ve automated onboarding, ID verification and instant bank account setups. But these schemes are coming to an end and SMEs will need to source funding from non-government sources in the near future.
Ian Duffy, CEO, Accelerated Payments
“Better tailored products for SMEs and more diversified options for funding have come through”
There’s also been a shift in incumbents looking to tech-enabled lending and partnering with fintechs to fulfil demand. Better tailored products for SMEs and more diversified options for funding have come through, too.
These alternatives have helped thousands of businesses to not only stay afloat during the pandemic, but to also access the capital they’ve needed to launch new products, hire new people and expand into new markets. The hope now is that more business owners will begin to do the same and embrace what is a new age of business finance.
Surviving cash flow problems
When hard times hit, it's not just about getting the money in, but keeping the money in; SMEs need to look at preserving cash flow. Survive, revive, thrive - that’s the mantra - and there’s a fintech solution for each of these areas.
Surviving is about short-term cash loans - which are available with P2P lending and crowdfunding. Reviving is about access to working capital (without the debt!), while thriving is about securing the supply chain and keeping on top of those things to do well. These latter two requirements can be met through invoice financing, which allows companies to borrow the money they need to cover unpaid invoices that a client owes a business in a process that is transparent, reliable, straightforward and quick.
What happens is an invoice financing company funds a major part of the amount a supplier is owed in the invoice. When the invoice is paid by the client, the business pays a small percentage of the invoice amount back to the funder as a fee for borrowing the money. This financing option allows businesses to ensure they have sufficient funds in their coffers so they maintain their cash flow effectively.
While much has been made of the rise of alternative finance in the last few years, awareness among business owners remains low. We need to change this during the pandemic - not only for the survival of these companies, but for our economy as well.
Islamic fintech Wahed plans UK expansion: Hires expert GM
Wahed Inc has hired a leading industry expert to take Islamic finance forward in the UK marketplace.
Umer Suleman has been appointed as General Manager of UK operations for Wahed Inc.. His role will include overseeing Wahed Invest’s nationwide growth strategy and strengthening the firm’s position as a leading provider of ethically focused investment services.
Suleman’s track record includes over 15 years of regulatory, risk, and strategy consultancy roles, as well as advisory positions across a variety of businesses and sectors including positions at UKIFC, Daiwa Capital Management, and Ernst & Young (EY).
He also spent seven years at HSBC as Head of KYC Risk globally within their Global Banking and Markets business, Head of Business and Conduct Risk for MENA within Retail Banking, and headed up the CCO function for Digital (GLCM) within the UK with a global remit.
Wahed and the growing role of Islamic finance
The startup fintech was founded in 2017 and is an American company based in New York City. Since its inception, it has grown from strength to strength and in July 2019, launched the first exchange-traded fund in the US that was compliant with Sharia law.
Islamic finance typically refers to the way businesses and individuals raise capital in accordance with Sharia, or Islamic law. It also refers to the types of investments that are permissible under Islam.
Wahed currently operates in 130 countries and has offices in Washington D.C, New York, London and Dubai. It has also developed an easily accessible digital platform that balances ethical finance with modern investments, attracting over 200,000 active clients from around the world with features such as free portfolio recommendations and no hidden fees.
Wahed UK expansion plans
According to reports, the UK is highly receptive to services in the Islamic finance sector and is also one of the fastest-growing markets globally. It has a three million-strong Muslim population and one of the most developed Islamic finance sectors outside of the traditional Muslim regions, with global population figures projected to double over the next forty years.
It is hoped Suleman’s leadership of Wahed will address the underbanked needs of the Muslim community while also serving the increasing number of retail investors currently seeking ethical alternatives to wealth creation.
Speaking about the new role, Wahed CEO, Junaid Wahedna, explained “Mr. Suleman’s appointment reaffirms our commitment to providing innovative and outstanding ethically driven financial services to a market that, historically, has been underserved.
“We’re delighted to welcome Umer to the team and firmly believe that with him at the helm, our operations in the UK will continue to go from strength to strength and provide customers seeking ethical investments with accessible, trustworthy and innovative solutions.”
The appointment follows on from Wahed’s recent investment round and its acquisition of the UK-based fintech Niyah.
These events will support the company in its plans to build an Islamic marketplace that meets growing demand for socially conscious investors – and not just those of Islamic faith.
The fintech firm also plans to utilise the UK’s position as a leading hub for Islamic finance as a springboard into other European cities, and believes it has a central role to play in providing Shariah-compliant services that address inclusion and inequality.
The Islamic finance industry is currently valued at around US$2.4trn and is expected to grow steadily by 10-12% over 2021 and 2022, having experienced rapid growth in recent years.
THREE reasons why Islamic finance is a growing sector
- The UK Muslim population is growing - and has been traditionally underserved by incumbent banks. The Muslim population is growing twice as fast the world’s non-Muslim population and Islamic finance address this group’s needfor Shariah compliant financial products.
- It encourages financial inclusion. According to the World Bank, financial inclusion is defined as individuals and businesses having access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
- It supports Sharia compliant products. Transactions that work with industries forbidden in Islam (gambling, usury and speculation) are forbidden. Islamic banking only works with businesses that adhere to their ethical and moral standards.
Image credit: Wahed Inc team