September 26th, 2018
How Asia Is Adapting To The Alternative Finance Revolution
In more ways than one, alternative finance has made borrowing simple, swift and suitable. Over the last few years, alternative finance providers have grown in number and garnered significant acknowledgement and traction from stakeholders such as regulators, venture capitalists, banks, enterprises and investors. They provide financing outside the parameters of traditional lenders, most commonly banks. Breaking it down even further, alternative finance includes domains such as crowdfunding, peer-to-peer financing, and invoice financing.
The rise of alternative lending
The sudden rise of alternative finance can be attributed to two reasons. First, the inability of traditional financial institutions to cater to certain segments of the market which need access to secure financial services. And second, because fintech firms have recognized these gaps, successfully experimented and developed solutions to fix these gaps with minimal red tape. Based on data from The World Bank, more than 200 million micro, small and medium-sized enterprises (MSMEs) in emerging economies lack adequate financing, due to lack of collateral, credit history and business informality. Until recently, alternative finance platforms have witnessed staggering success and even reached a stage of maturity in the Western markets, particularly in the U.K and U.S.
In recent times even the East has also joined the ranks and given the alternative finance industry a major boost. Countries such as China, Singapore, Hong Kong, and most recently Indonesia, Malaysia, the Philippines, and India have displayed a tremendously positive response to several platforms providing alternative forms of finance to enterprises and individuals. Rightly so, as Asia is home to a population of 4.4 billion and 5 key financial centers of the world. Aside from a considerably large consumer base and a relatively stable political system, most of the Asian economies emerged from the 2008/09 financial crisis in better shape than its western counterparts. The tightening of credit across several banks across the region has played a pivotal role in the growth of alternative finance in these markets.
As alternative financial products gather momentum, China’s state-controlled banks are losing share of the nation’s 44.8 trillion yuan in household deposits. The same can be said for many major Asian banks.
A special mention must be made of the Asian regulators which are actively encouraging and supporting the growth of alternative finance in their respective countries. Singapore’s regulator has set aside $225 million to develop and support fintech projects locally. It has also eased the rules for financiers to increase the level of unsecured lending. The Monetary Authority of Singapore has even housed an innovation lab called Looking Glass within its building. Hong Kong Monetary Authority has created a system which brings banks, financial technology platforms and the regulator itself to collectively brainstorm and experiment on developing innovative solutions.
See: Share Your VOICE and Help Define the Future of Alternative Finance in Canada (until Jun 30, 2017)
In the same manner, China has become the largest P2P market regionally thanks to its government which encouraged the growth online finance to cater to the underserved market instead of solely relying on local banks. Japan has taken a step further to collaborate at an international level by partnering with the Financial Conduct Authority to encourage a cooperation between financial technology platforms in Japan and in the U.K to be able to operate in both countries.
New kid on the financial block
As the alternative finance industry continues to grow and expand, it has seized a significant portion of market share from traditional lenders by attracting their investors and borrowers onto its agile and innovative platforms suitable for a wide range of users. For example, such platforms provide investors the opportunity to find and zero down into investments which suit their specific risk appetite with greater control over their investments than a portfolio manager. At this point one may wonder - how would banks react to such forces of fintech? Would it be hostile, or regressive? After all, investing and lending are the basic fundamental reasons behind a banks existence!
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at ncfacanada.org.