What possibilities do schemes such as crowdfunding and peer-to-peer lending offer regional SMEs?

A new way to fund your firm

In recent months, crowdfunding and peer-to-peer (P2P) financing schemes have begun to gain more attention in the UAE.
As techniques, they have already featured strongly in locations such as the USA’s Silicon Valley, and in some of the more creative sectors globally. The global take-up of such schemes is estimated as being in excess of US$5bn. While their presence in this region has to date been minimal, this could well be changing. With traditional banks declining between 50–70% of the SME loan applications they receive, finding financing is still proving challenging for many SMEs, especially those in their infancy with a short trading history. Alternative funding methods such as these are therefore attracting increasing interest.
If you are curious about them, the starting point is to know the difference. Crowdfunding means fully or partly funding a project or venture by raising small amounts of money from a large number of people. Generally: these investors are ‘members of the public’; the scheme is run online; and it tends to be mostly used by those in the more creative industries – such as filmmakers and fashion designers – who appeal to investors’ shared passion in their project. Crowdfunding is sometimes done directly between a company and the investors, and sometimes via an intermediary body.


Peer-to-peer lending is a form of crowdfunding, but it tends to be more business-oriented. It involves a third party agency acting as an intermediary, connecting a business that is looking for funding with individuals who are looking to invest for future returns. These investors are often keen to diversify their portfolio and back potential success stories from an early stage. The intermediary connects the two via a pool of funds, which they loan to borrowers with interest, and return to investors with – ideally – profit.
As well as being an alternative to banks, both methods have the added benefit of bypassing much of the cost, time and complexity involved in conventional finance. The savings this creates can then be passed on to the investors (who get attractive returns) and the businesses (who get faster access to lower cost finance). The downside for borrowers can be higher interest rates than banks offer, especially if the intermediary assesses you to be an unproven or potentially risky borrower. For investors, the downside mostly centres around the limited regulation the industry has.
Among the first players in the market here are Aflamnah (crowdfunding) and Beehive (P2P). Aflamnah positions itself as the Arab world’s first crowdfunding organisation, and features an advisory committee of leading local figures from the fields of business, finance, legal and creative. Beehive is the UAE’s first online marketplace for P2P lending, and has been set up by a former Group CEO of EmiratesNBD.
Even if these schemes are not for your business, their appearance in the UAE confirms two things. Firstly, the continued dynamism and growth of our SME community. And secondly the appetite for an increasingly diverse range of funding options. Both support the sense of a sector that is keen to think differently in its quest for success.

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