The Alternative Finance market consists of the financial channels and instruments that came out of the traditional ways such as the regulated banks and the capital markets. In this way of financing, technology is used and financing is often through online platforms. Also, the Alternative Finance market does not restrict to only institutional investors or high net-worth people and companies. Anyone who suits the criteria can participate in the funding and investing activities. In this article, we will provide an overview analysis of Singapore Alternative Finance Market based on the latest Cambridge publication, 3rd Asia Pacific Region Alternative Finance Industry Report, University of Cambridge.
Singapore’s Alternative Finance Market
In South East Asia, Singapore is the market leader for Alternative Finance. In 2017, the country accounts for more than half of the region’s online Alternative Finance market volume.
From the graph, Singapore’s total Alternative Finance activities were around US$190 million, out of a total of US$325 million in South East Asia. Although the country’s Alternative Finance market had only increased by 16% from 2016, it has risen rapidly, with an increase of more than 2,000%, since 2013.
In the various models of alternative financing, P2P/Marketplace Business Lending and Equity-based Crowdfunding are the 2 main contributors to the market. The two models that grew the most from the previous years are Invoice Trading and Debt-based Securities.
Benefits for SMEs
Over the years, alternative financing has been becoming a popular financing option. Especially for start-ups and SMEs, who often face difficulties in gaining funding from traditional banks. With alternative financing, these companies would be able to gain funding and capital for its operations and growth, even if the traditional banks and financial institutions have rejected them due to reasons such as lack of credit history, lack of collateral, etc.
From the graph below, we can see that in the Asia Pacific region, the number of SMEs that uses online alternative financing platforms has increased by around 137% in 2017 as compared to 2016, and totalled up to 103,477, these SMEs raised up to US$2.23 billion.
Role of Investors in the Market
Alternative Finance also benefits non-institutional investors as they now have more choices to invest in instead of traditional investments. The traditional finance markets, such as bonds and stocks, might require big capital to make an investment. Hence, investors can choose to invest a smaller amount in the Alternative Finance market.
With reference to the graph below, we can see that in the Asia Pacific region, non-institutional investors contributed to the majority of total funding volume. They play a big role in the various key models, with the only exception of Balance Sheet Business Lending. Especially for Real Estate Crowdfunding and P2P Business Lending, the non-institutional volume contributed to 97% and 90% of the total volume respectively.
In Singapore, non-institutional investors are the majority, with the funding volume being 81% of the total volume in the country.
Alternative financing is now a rising trend, for both investors and SMEs, across the globe. It is an economically smart choice for SMEs to get their fundings from alternative financing platforms. With alternative financing, the process is speedy and has a higher approval rate than traditional financial institutions.