If the discussions conducted at the Entrepreneur Middle East Enterprise Agility Forum in November last year were any indication, then one of the biggest problems that SME owners in the region face is raising capital to grow and develop their respective businesses. This is especially true in the economic ecosystem of the UAE- a recent survey of 157 SME owners, founders and CEOs in the country by souqalmal.com found that only 28% of respondents had taken financing from a bank, of which 58% found the process to be an arduous one. With this being the scenario, it should come as no surprise that SME owners in the region are keenly looking out for alternative financing options to grow their businesses, and so, the newly launched UAE-based peer-to-peer (P2P) lending platform, Beehive, seems to be an answer to their prayers.
P2P lending, also known as marketplace lending or social lending, refers to the practice of investors lending money directly to borrowers without going through a financial intermediary such as a bank. While the practice is today quite prevalent in the U.K. and the U.S., it is still quite a novel concept in the Middle East. Beehive claims to be the first P2P lending platform for SMEs in the UAE, and it is designed to be an online marketplace that allows businesses to get direct access to lower cost finance, while also being a place where investors can diversify their investments, manage their risk and get better returns as well.
However, it must be noted that Beehive is not aimed at startup or pre- profit businesses- it’s instead targeted toward established businesses that have been in operation in the UAE for over two years, and are now looking for expansion capital to fuel their growth. “By using our innovative software platform, we’ve been able to streamline many of the processes required as part of the SME funding journey,” says Craig Moore, Founder and CEO, Beehive. “We believe both businesses and investors benefit from our online marketplace, in the form of reduced finance costs and better investment returns.”
“For many investors in Europe and the U.S., P2P lending forms a part of their alternative investments as part of a diversified portfolio, especially as saving rates have been historically low,” Moore adds. “Beehive thus offers local investors an opportunity to support UAE business growth while benefiting from attractive rates of return.” “Also, because investors can lend from as little as AED100 to creditworthy businesses, they can diversify their investments across a portfolio of companies that helps manage investment risk,” he explains.
“Each loan will make monthly repayments providing a steady income stream for investors.” But it’s not just the investors that benefit from Beehive- SMEs stand to gain a lot from it as well. “There is a significant funding gap across the MENA region, estimated at over US$200bn,” says Rick Pudner, Chairman, Beehive. “Although the UAE has a healthy SME sector, [with] there being around 300,000 SMEs representing around 60% of GDP and over 90% of employment, they still suffer from a lack of relevant funding options.”
“Beehive offers businesses the opportunity to reduce their cost of finance and accelerate their time to finance by reducing the cost and complexity of conventional finance sources,” Pudner says. “Because investors bid to lend in a reverse auction process, it means that businesses receive the lowest rates available from the crowd.” And the platform that Beehive offers is indeed getting noticed in the market- since its soft launch in October last year, the company has funded six UAE-based businesses, providing each of them with a cash injection of between AED 100,000–AED 500,000, which was culled from more than 500 local investors.
One of the companies that got funded through Beehive was change management consultancy GENYX, which was seeking capital to bring new associates on board as part of its client portfolio development strategy. “We found the Beehive process to be customer-friendly, easy to execute, and swift,” says Dave Dimmell, Managing Director, GENYX. “Many banks are not focused on SMEs; those that are have bureaucratic processes or often seemingly unhelpful managers who don’t clearly see SME requirements. Beehive is making a very valuable contribution to the SME community in the UAE, and we see them as a strategic partner for SMEs.”
Dimmell’s comments are are representative of the market reaction Beehive has seen in the past few months. “We’ve had a fantastic response to Beehive,” Moore says. “All of our businesses have reached their funding target in 14 days or less and at highly competitive rates, which has delighted our clients. Our online marketplace directly connects SMEs who need credit, with investors who are eager to provide it.” According to Pudner, who was formerly the Group CEO of Emirates NBD, the timing is right for UAE SMEs to take advantage of the Beehive concept to grow their businesses.
“P2P lending is estimated to originate around $9 billion of loans globally in 2014, but with current growth rates, this is projected to be $1 trillion in the next ten years,” Pudner says. “We feel the timing is right for the UAE to embrace and take advantage of this technology to drive local economic growth.”
“With the prospect of Expo 2020, in addition to some of the regional initiatives, we feel there’s a real spirit of optimism amongst SMEs,” Pudner adds. “And by bringing investors and businesses together, we’re really excited that Beehive can help foster mutually beneficial partnerships for growth across the UAE community.” As for Beehive itself, it does seem safe to say that the buzz about the company is only going to get louder- Moore says there are plans underway for Beehive to grow beyond the borders of the UAE, and more. “We do have plans to expand, not just geographically, but also our product range,” he says. “Conversations are already taking place in markets that we believe will benefit from our innovative approach to help solve SME financing. Watch this space.”
How Beehive Works
Beehive‘s online marketplace facilitates flexible funding for established businesses seeking investment between AED 100,000 and AED 500,000. Individual investors can invest from as little as AED 100 and bid to lend money, choosing how much they will lend and at the interest rate. Beehive then facilitates the loan agreement between the business and investors, charging a small percentage fee of the loan amount. The business receives funding typically in around seven days, and investors receive monthly repayments at target rates of between 8% and 12%.
