Treasury Today Country Profiles in association with Citi

Specialist financiers in Asia spread their wings

Origami birds hanging on a wall

New players are growing rapidly in Asia, helping to fill the region’s burgeoning trade finance gap. And, as Treasury Today discovers, they are not banks.

Much has been made in recent times of the rapid rise in alternative finance providers thanks to the post-crisis regulatory measures that have driven deposit-taking institutions to rein in their lending activities to SMEs. Less well documented, however, is the rise of ‘specialist’ financiers who have been expanding rapidly to fill the vacuum left as the international banking sector scales down trade finance activities.

A survey by the Asian Development Bank (ADB) published in December 2014, shed some light on the market opportunity for such lenders. Looking at countries like Vietnam, Cambodia, Bangladesh, Pakistan and India, preliminary estimates calculated using that survey data indicate an unmet demand for trade finance across the region now standing at around the $800bn mark.

The vacuum then, has become very significant indeed. That might partly explain why specialist financiers like The Falcon Group have seen such remarkable growth across Asia in recent years. Whilst the company is now over two decades old and one of the largest non-bank providers of trade finance, it is in the past six years (around the time, coincidentally or not, that the recent regulatory deluge began) that the company has really begun to spread its wings. During that time, the company’s revenue has increased on average 25% per year – moving, for instance, from in excess of $3bn turnover in the last financial year to a projected $4bn this year.

Growth in Asia has been especially pronounced. In 2011, at the financial year end, Falcon’s operations in the Gulf region accounted for 80% of its overall business, while a mere 17% was related to Asia. Fast-forward three years to 2014 and only 55% of their transactions originate in the Gulf, while 42% now come from the Asia region. “Mostly [the growth has been] in Asia during the past couple of years,” says Will Nagle, CEO of the Falcon Group, a development he attributes to the region’s corporate sector becoming conscious of opportunities outside the banking sector. “I think it is the general awareness that has made the difference, not just for Falcon but other specialist financiers too. There is appreciation across the region now of the availability of different financing structures and there isn’t so much dependency on the banks to provide that,” he says.

What Falcon has managed to do is find and operate within a sweet-spot in the market where companies have quite a significant financing need, but perhaps not significant enough to incentivise the involvement of larger banking institutions. The company therefore sees itself as a complement to the banks, rather than a competitor.

By taking a more ‘transactional’ approach, that is looking at each transaction and evaluating it on its merits, Falcon can reach areas that the banks cannot or do not wish to reach. “Would one of the major international banks want to finance say the importation of $1m over a six month period?” asks Nagle rhetorically. “Probably not – but we will do that.”

Of course, another part of the reason the company is able to operate so effortlessly in these areas of the credit market is that as a non-deposit taking institution they are not subject to any of same onerous regulatory requirements that banks have been in recent years. There is not guarantee that will always be the case though.

But far from being alarmed by that prospect of that happening, Nagle says this is something the business expects, eventually. It is not in any case entirely untrodden ground for the company, it having proactively asked, a few years back, for its entity in Dubai to be regulated by the Dubai Financial Services Authority.

Whatever happens with the regulation of specialist financiers globally in the next few years then, Falcon should be well-prepared. As such, one would expect the incredible growth story of Falcon – and indeed the whole specialist finance sector – to continue in the years ahead. Especially given that – mirroring the feedback of companies who have tapped alternative finance providers – many clients who have had an initial taste of what the company can offer are finding there is much they prefer over how such transactions were conducted previously with their banks.

“Clients like the way we work,” says Nagle. “We try to keep things simple and avoid overcomplicating matters. A lot of it is about the service we provide and the speed and efficiency we can deliver.” And that, understandably, is exactly what the company will be focusing on maintaining moving forward. “We are different,” he adds. “It's a unique organisation which is why we are in the enviable position we are in today. But our objectives are to continue to grow and continue to stand apart.”