Singapore's Validus Enters Vietnam To Plug SME Lending Gap SME financing has been a problem around the world because banks are wary of lending to risky borrowers. But alternative lending is solving the issue slowly.

By Aparajita Saxena

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Asia Pacific, an international franchise of Entrepreneur Media.

Shutterstock

Validus Capital, Singapore's largest small and medium business financing platform, said it would expand to Vietnam, its third Southeast Asian market, as it looks to plug the $21 billion-financing gap for SMEs in the country.

The company, which launched in Singapore in 2015, and expanded to Indonesia in May 2019, said it would partner with corporates to provide financing for SMEs.

"Helping our SMEs to grow will be crucial for Vietnam's continued rise as a Southeast Asian economy," said Tran Thi Thuy Ha, chief business officer of Validus Vietnam.

Validus' foray into Vietnam addresses the long-standing issue of lack of SME financing in the country, and Southeast Asia in general.

Asia Has A Serious Dearth of SME Financing

Financial regulators around the world have enforced stricter laws for the banking and lending industry, requiring them to hold a certain amount of capital at all times to cushion against any major financial catastrophe, and forcing banks to become stricter with their risk assumptions, especially while lending.

SMEs, typically, cannot afford to offer a lot of collateral, or show solid profits from their businesses, and therefore make risky borrowers.

Banks around the world are currently grappling with margin squeezes, and in an effort to boost profits, cutting down on expenses. Most don't find any value in underwriting loans for SMEs, mostly because their typical loan size is not very large, and banks cannot justify the money or the manpower they spend on underwriting smaller, and mostly risky loans.

In Asia Pacific, SMEs make up over 95 per cent of all enterprises, employ around half of the workforce, and contribute around 20 per cent to national GDP in low-income countries, and as much as 50 per cent in those with high incomes, a Mastercard study showed.

The global funding gap for formal micro, small and medium businesses in developing countries is $5.2 trillion a year, and the East Asia and Pacific region represent 58 per cent of the total potential demand, a joint report released in 2017 by the International Finance Corporation (IFC) and SME Finance Forum estimated.

Fintechs, online lenders, SME lending platforms, like Validus, and other tech enablers have tried to address that problem by using technology and artificial intelligence to solve problems, such as scanning documents, checking transaction histories, reconciling important line items, connecting borrowers with lenders, and automating credit-worthiness determination tools, making it relatively cost-effective for banks to underwrite loans.

And the numbers reflect their efforts: alternative lending increased to $284 billion globally in 2016, from $11 billion in 2013, with China being the largest market at $240.9 billion, and the rest of Asia at $1.8 billion, as per a study by the Cambridge Centre for Alternative Finance.

Validus' study also shows that SMEs supported by the company in Singapore were able to increase their annual revenue by 17 per cent on average, contributed $300 million to Singapore's GDP, and added more than 10,000 jobs in the country - signs that alternative SME financing has real world implications.

Aparajita Saxena

Former Deputy Associate Editor, Asia Pacific

Aparajita is Former Deputy Associate Editor for Entrepreneur Asia Pacific. She joined Entrepreneur after nearly five years with Reuters, where she chased the Asian and U.S. finance markets.

At Entrepreneur Asia Pacific, she wrote about trends in the Asia Pacific startup ecosystem. She also loves to look for problems startups face in their day-to-day and tries to present ways to deal with those issues via her stories, with inputs from other startups that may have once been in that boat.

Outside of work, she likes spending her time reading books (fiction/non-fiction/back of a shampoo bottle), chasing her two dogs around the house, exploring new wines, solo-travelling, laughing at memes, and losing online multiplayer battle royale games.

 

Related Topics

Leadership

Why Overcoming the Shadows of Your Past Will Lead to Your Brightest Future

How to face and overcome the voices holding you back to propel yourself forward

Business Ideas

This Teacher Sells Digital Downloads for $10. Her Side Hustle Now Makes Six Figures a Month: 'It Seems Too Good to Be True, But It's Not.'

When one middle school teacher needed to make some extra income, she started a remote side hustle with no physical products and incredibly low overhead. Now she brings in six figures each month, and offers courses teaching others how to do the same.

Business Process

Employees Check Their Emails 36 Times An Hour — Here Are 5 Proven Tips to Get That Time Back.

The idea of "inbox zero" is much more than a myth — it's doable.

Business News

This Influencer Has Nearly 150,000 Instagram Followers and Makes Over $10,000 a Month. There's Just One Catch—She's Not Real.

Aitana López has over 149,000 Instagram followers and brands love her. Is she the future of social media marketing?

Leadership

How to Win Over the Room With Effective Persuasion Skills

The art of persuasion is not just about the notes, the data, and the pitch; it's about creating a connection that resonates with the audience. We explore how a blend of story, active listening, and genuine interaction can not only capture attention but also win hearts and minds, setting the stage for achieving success in any meeting.

Leadership

Great Leaders Must Be Great Coaches — Here's How to Become One

To be a successful leader, you must become an expert in how to help others grow and develop. Here's a research-driven approach for entrepreneurial leaders to coach and effectively develop their teams.