ADGM teams up with FinTech AD Innovation Challenge Finalist, Finverity, to boost supply chain finance


28 December 2020, by ADGM's Staff Editor

  • SMEs account for only 5% of total bank lending in the UAE
  • SMEs key to the growth and diversification of the UAE economy

Finverity today announced a step change collaboration with the Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM) – Abu Dhabi’s international financial centre. The collaboration will develop a proof-of-concept to improve the transparency and trustworthiness of UAE SMEs’ credit profiles to enable faster access and on better credit terms to working capital finance.

The SME sector is key to the growth and diversification of the UAE economy. Although local SMEs represent 95% of companies in the country and 86% of the private sector’s workforce, they account for only 5% of total bank lending in the UAE. While UAE SMEs’ share of domestic credit leads other countries in the region, it is still well below the levels in developed markets.

UAE SMEs face two key challenges when seeking trade and working capital financing. Firstly, banks face high onboarding and processing costs when handling a loan application, making lending to larger firms relatively more profitable. Secondly, banks lack sufficient data on SMEs to efficiently evaluate their credit risk. As a result, banks either refrain from lending or charge higher rates of interest to compensate for the perceived risk. These challenges sharply reduce access to finance for SMEs and even for mid-caps, when compared to global multinationals or national leaders.

The collaboration has grown out of the selection of Finverity as a finalist in the FinTech Abu Dhabi Innovation Challenge 2020, co-hosted by ADGM and the Central Bank of the UAE. Finverity was selected as the finalist for problem statement number 6, which sought solutions to address the “creation and validation of financial information, robust future cash flow predictions and sustainable business model strategies for SMEs, so that we can help build trusted and transparent credit profiles that provide the banks and other financiers a greater level of confidence of their credit-worthiness”.

The collaboration addresses the above challenges via a programme designed to collect real-time financial data from the accounting packages of SMEs on the Finverity platform and build comprehensive credit profiles. Real-time financial data will boost visibility into the financial position of participating SMEs, supplementing KYC, trade and invoice data already captured by the Finverity platform.

By participating, SMEs will gain access to Finverity’s “3 clicks” supply chain finance facility, whereby SMEs will receive upfront payment at a discount from a funder for invoices due later from some of the larger local buyers. The buyer then pays the invoice at maturity to the respective funder, providing an investment return to the funder. This enables SMEs fast access to working capital that is otherwise trapped in payment terms, while data is being gathered and their credit profiles become comprehensive enough for direct lending.

This collaboration will make supply chain financing available to even the smallest of UAE SMEs in a tech-enabled, easy-access format, also enabling funders to fund smaller supply chain finance programs at scale, thanks to a high level of automation that leads to significantly lower operational costs and better risk mitigation. “The UAE government’s active push towards greater data transparency and a stronger regulatory regime makes it highly attractive for funders on the Finverity platform seeking to fund supply chain finance offering a good risk/return ratio. We are delighted to be endorsed by ADGM and the UAE Central Bank as the UAE is one of the leading trade finance and fintech hubs in developed emerging markets with strong growth potential”
Slave Oganezov, CEO of Finverity

“SMEs are core contributors to the UAE’s economy and will play an important role in the economy’s future growth and diversification. We welcome scalable solutions that improve financing conditions for SMEs, including those that reduce the processing costs of financing through automation. The availability of high-quality credit risk data on UAE SMEs will help attract a substantially larger pool of funding capital and remove obstacles to their growth”
Wai Lum Kwok, Senior Executive Director, FSRA, Abu Dhabi Global Market

If you have questions or need any assistance, we're here to help.