Today we are announcing our investment in Advanced Merchant Payments — AMP, an alternative lender for small and medium-sized businesses.
This is a market with tremendous unrealised potential — a credit gap of US$3 trillion faced by businesses all over the world that, while generating revenues and employment and profits, and being vital to any national economy, fall through the cracks of the existing, “traditional” credit systems. It’s almost like banks can think only in extremes — either lend to everyone with a pulse and almost make the world collapse (see 2008 and the sub-prime fiasco), or tighten the faucet so much that, once again, the business world almost collapses. Doom or doom…
Any person that started a small business knows that banks will give them a loan, provided it is secured by the entrepreneur’s house — I know, I was stupid and confident enough to do that some ten years ago. And a business with 5 years of cash flow and growth and a business plan and collateral in buildings and equipment can also get a loan (relatively) easily — banks have existing systems for analysing that, and dispensing money accordingly. But most banks do not have systems to cost effectively assess SME creditworthiness.
Doesn’t matter if a SME has substantial (although unpredictable) electronically verifiable cash flow (a.k.a “bank transactions”), doesn’t matter that it has paid utilities and rent for the past three years, doesn’t matter that it has employed people for the past three years (and paid them in cash) — those businesses mostly do not exist on a bank’s credit products radar.
With better systems, such as the one developed by AMP, lenders can actually disburse loans to SMEs and help everybody in the process — themselves and the borrowers. AMP has demonstrated the effectiveness of its approach over more than four years of lending via operations in Hong Kong, Singapore, and the Philippines, with upwards of $30m in disbursement at a very strong rate of growth, and non-performing loans of less than 3 per cent over this period.
Even more, it is good business to do good things for the community… As a restaurant manager in Manila recently said “AMP’s lending solution was a lifeline. For the first time we had the money to pay off our existing debts. The automated daily repayments and much lower interest rates meant the loan was realistic and manageable… revenues are up and business is back on track.”
A good summary of what AMP does in this video from their presentation at Finovate earlier this year.