We sat with ADGM FSRA’s Wai Lum Kwok to understand how this new, cutting-edge digital platform aims to bridge the funding gap faced by SMEs in the UAE.
To what end was Numou created?
SMEs are a critical part of the private sector’s growth engine, but they still struggle to get the funding they need – not only in the UAE but around the globe. On the one hand, banks don’t really want to lend to new SMEs, first and foremost because they lack the necessary data points to conduct a proper credit analysis and make an appropriate decision. On the other hand, SMEs often lack the ability to run their companies in a way efficient enough to grow their businesses optimally and get the necessary traction; they’re thus considered as higher risk from the banks’ perspective. Lastly, there’s a gap in terms of matching the right SMEs with the right financial products and the right banking partner.
This is why, in 2019, we were tasked with solving this pain point as part of the Ghadan initiative, the accelerator programme put together by the Abu Dhabi government to develop innovative solutions across various economic verticals, including the financial sector.
How does Numou support SMEs, practically?
Firstly, our data utility feature efficiently extracts SMEs’ data from various sources (DED and ADGM for now, with planned expansions to other zones by the first half of 2024), bundles this data together to create a comprehensive and standardised view of these SMEs’ business, and pushes it to the lenders. SMEs that are already registered with DED just need to give consent when they join the platform; new SMEs that haven’t registered yet can start entering their information onto the platform, where it will be stored for future use as they build out their business profile.
Then, Numou acts as a smart marketplace, matching the right borrowers with the right lenders based on the SME’s needs – for example, how much they hope to borrow, how soon they can repay, the kind of collateral arrangement which has implications on the interest rates they’re looking for, and so on – and the products that lenders are offering to serve certain SME profiles.
The third feature is a digital library of tools to help SMEs upgrade their processes through digitalisation, which will not only improve their business efficiency and financial performance but will also help lenders make better financing decisions because digitalised data is captured in a structured and usable manner.
We’re also bringing on board various enablers and partners to foster virtuous reinforcement within the ecosystem. For example, by working with the Ministry of Industry and Advanced Technology (MoIAT), we can help SMEs with high In-Country Value (ICV) scores to have better access to loans from participating lenders, which also advances the interests of MoIAT in incentivising SMEs to improve their ICV scores.
How was the platform developed?
To ensure that what we built is relevant, we engaged various stakeholders: the SMEs, to better understand their pain points; the financial institutions, to better understand what’s stopping them from lending and to identify the type of information they need from SMEs; and the people who had tried to solve this issue in the UAE or other countries but hadn’t always succeeded, to learn from their experience.
For instance, how do we foster mutual trust, inclusion, and open competition if the platform were owned and run by a consortium of private sector financiers? How would participating financiers and lenders who are not owners or operators of the platform be assured that they have fair and equal access to SMEs, and proprietary information on their product offerings are properly safeguarded? After careful consideration of stakeholder feedback, we decided that ADGM, as a public sector organisation, can fill the role as a trusted neutral operator of the platform to incubate and accelerate the SME financing ecosystem.
How important was this involvement of the public sector to emphasise the idea of fairness on Numou?
Our starting point was that this platform must be inclusive. No one should be denied the chance to participate; whether you’re a young or mature SME, you should be allowed to register with Numou. Likewise, the banks and lenders can choose the kind of loan products they wish to offer. If there’s a match, good; if there’s no match, we need to continue working on ways to bridge the financing gap.
This is why one of our strategies is to onboard as diverse a grouping of lenders as possible, including traditional financial institutions and alternative fintechs, as well as introduce different types and structures of products on the platform. For example, supply chain financing might be one effective solution to lower financing costs for SMEs. Conglomerates like Lulu or Carrefour, as well as e-commerce businesses, have their own SME vendors to whom they can provide short-term financing; banks that lend to these conglomerates can reduce their counterparty risk and lend at a more competitive rate. This kind of creative structuring leads to a win/win situation. We intend to build out the lending product offerings and introduce equity financing on the platform in phases.
What does the user journey look like for an SME?
As part of the registration process on the platform, the SME applicant will have to give its consent for the platform to pull the relevant business data from participating sources and, in turn, share the information with lenders to facilitate the credit analyses and financing decisions; the UAE Pass, which is part of the UAE government’s infrastructure, will essentially link the identity of the authorised applicant to the SME company and provide the consent mechanism.
Government data sources do not hold all the data required for financing decisions, so the SME might still need to fill in additional fields to improve its borrowing chances – for example, financial statements and tax returns, if they’re not already required to be filed with the relevant government registration authorities. Depending on the information it provided, the SME will get an indicative score of the completeness of information required to apply for the loan.
The data then goes into the matching process that will channel the financing request to the lenders with the relevant products that meet the request. The lenders do their own analysis offline, and whether they’re comfortable lending or not is entirely their decision. If they think that the SME is a valid prospect, they’ll continue the conversation and provide an offer to the SME on the platform.
In subsequent phases, we aim to become a one-stop-shop for SMEs, incorporating more automated processes for loan disbursement, payments, and insurance.
How many SMEs do you expect to join the platform?
There are some 550,000 SMEs in the UAE; we hope to target a modest 3,500 in the first year as we test out the ecosystem with our launch partners, with a view of scaling that number multi-fold as we build out the range of products on the platform.
Does a platform like Numou exist elsewhere?
We do believe we are the first public sector organisation to launch and operate an inclusive marketplace for SMEs seeking, and lenders providing capital, and we hope to break new ground in addressing the financing needs of the SME sector.