Dubai: Gulf Finance Corporation PJSC is an ambitious boutique finance company that provides loans to prime consumer borrowers and small- and medium-sized enterprises — two segments generally not well served by banks and other lending institutions.

Gulf Finance was established in 1998 by Oman-based Gulf International Banking Corporation and Sharjah-based InvestBank, with an emphasis on asset financing, for the construction and transportation sectors.

Today, Gulf Finance is fully owned by regional investment bank Shuaa Capital. In 2002, Shuaa acquired a majority stake which it increased to 100 per cent in 2005.

The company has an asset size in excess of half a billion dirhams with a total balance sheet size of more than Dh800 million, and about 2,000 active customers — making it one of the largest niche finance companies in the UAE.

Steve Williams joined Gulf Finance as its Chief Executive Officer with a mandate to transform the 10-year-old firm into a boutique finance company that focuses on small and medium-sized enterprises (SMEs).

In an interview with Gulf News, Williams speaks about the business outlook for the non-bank finance company.

Gulf News: SME is a segment that seems to be getting crowded as a number of national and international banks are keen to acquire assets in this segment. Is there enough space for you?

Steve Williams: Gulf Finance is purely focused on SMEs in our financing activity. We don't do large corporates and we do very little consumer finance. Having said that, the banks in general deploy only about 2 per cent of the funds available to them to the SMEs. Lending to small companies is very difficult and so there is a huge market available to us. We could have doubled the amount of lending this year compared to last year in terms of applications that came to us. A lot of institutions are interested in this asset class but the numbers that are lending into this segment are very few.

What are the kinds of lending that you are specialising in? Are they fully collateralised?

We have three categories of loans available for this segment. First, we have the SME Advance which is focused on the very small category loan of up to Dh250,000. Those aren't asset-backed. But we do our due diligence and make sure these businesses have a sound operating model, a good manager or management team and in the event of the business having some problems, we make sure the management has the capacity to work with us to resolve these issues.

The next level of financing is asset-based financing. This is backed by a tangible piece of security. In these kinds of deals we finance up to Dh4 million.

In addition, we have large-structured financing deals which are anything above Dh4 million and involve the balance sheet of the business with collateral support in terms of property or any such other tangible assets.

SME Advance, the smallest product in our SME financing range is targeted at reigniting the economy at the grassroots. In this type of financing, we are telling our customers that if they have a problem during the course of the loan, they can come and talk to us rather than leave the business, because this loan is not about threatening customers with jail to recover the outstanding. Rather it aims to work with customers to come out of turbulence, if any.

What is your unique selling point in SME lending compared to banks?

We have a very experienced and talented team in identifying the right kind of assets we want to acquire. At Gulf Finance we have a very flat structure, which means our turn-around time from a loan application to disbursal is fairly quick.

Thirdly, we work closely with our customers in times of distress to resolve the issues rather than use the threat of jail or other intimidation tactics to recover the loans. Additionally, we allow our customers to repay their loans ahead of schedule without any repayment penalty.

Are you into consumer finance? What are your plans for this segment?

We are not big into consumer finance. We have one product that is marine finance. It is for people who are looking to buy a pleasure craft, a yacht or jet skis. These pieces of equipment are asset-backed. This is a very niche segment of consumer finance and this constitutes only a very small segment of our assets.

Are asset-backed financing models such as sale and lease back, and hire purchase and hypothecation of equipment a part of your financing strategy?

Yes indeed. Asset-backed financing forms a very important part of our SME financing. We do a number of deals on sale and lease back mode of financing.

The piece of machinery we finance will be in our name until the loan is fully paid. These types of loans are provided to industrial establishments, professionals and new undertakings that need financing to acquire essential machinery.

What is the kind of upper limit you have on equipment financing?

If the financing is strictly for acquiring equipment and machinery we can go up to Dh20 million.

While banks are trying to lend large ticket loans to a few large corporations, what we are attempting to do is to lend small amounts of money to a large number of small companies. This way we are reaching out to a large number of entrepreneurs and spreading our risks wider.

What are your sources of funding? How are you working around the rising costs of funding?

We are funded through three routes. The main ele-ment is our equity which is very high. Corporate deposits we can take and finally through bilateral lines of lending from other banks. Banks like to lend to us because a large portion of our portfolio is asset-backed, we have a strong professional management team here which is also attractive to banks. Many banks want to lend money at the moment. I think they would prefer to lend to a company that has assets that are fully secured. So we remain attractive to lenders in general. We have sufficient liquidity. We had a strong balance sheet during the past two years when liquidity was a problem in the market. Throughout the difficult phase in the market we have been able to maintain our high credit rating. In the last two years, we have been able to exit market segments where we were not comfortable and lend this money in areas where we are more at ease. You are right, our cost of funds is higher compared to many high-street commercial banks. Of course, the rates we charge our customers are also incrementally larger.

But the customers we service have difficulty in obtaining funds from the normal banking channels. So we provide alternative solutions to these customers. And to that extent our risk profile is slightly higher. Its not bad risk, but it requires an extra layer of due diligence. Effectively this allows good quality customers to get the funding they need.

Are the banks comfortable with the idea of taking indirect exposure to the SME sector through you?

Yes, indeed. They [banks] are getting exposure to some good quality SME assets through us without having to go through the hassle of individual due diligence on companies, or front-end sales service to whom we lend. Ultimately what they have to do is to assess the strength of our balance sheet to lend to us.

Do you seek Islamic funding for your operations? As you do a lot of asset-backed financing ideally your class to assets should be an ideal fit for Islamic institutions to do the funding?

There is enough space for Islamic banks to fund us. As you said, our asset classes are attractive to them. As it stands, our funding base includes both conventional and Islamic banks.

Are you doing any securitisation to create liquidity?

Securitisation does have its place in our line of business. I think when asset books reach a certain level it makes a lot of sense to securitisation. Frankly we are not at that level yet.

It does make a lot of sense to bundle the assets and offer those into the market. We have the credentials to do that when we get our assets at a certain critical minimum level.

Having said that, the market is not yet ready for that and the liquidity has to improve further.

You are part of Shuaa Capital. Does this mean your accounts form part of the consolidated balance sheet of Shuaa?

Gulf Finance is a 100 per cent subsidiary of Shuaa Capital. We have our own balance sheet. How they consolidate is up to them. But being part of Shuaa gives a lot of confidence in terms of dealing with counter parties. As far as our business is concerned, we have an independent management and decision-making process.

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New approach to tackle real issues for startups

Dubai: Gulf Finance recently launched a new product, SME Advance, which tackles real issues faced by start-up and small businesses seeking financing.

SME Advance provides local small businesses with a secure finance option which will not see SMEs penalised for bounced repayment cheques — a chief differentiator for this product.

Swift lending decisions can be made on client applications to allow businesses access to funds as quickly as possible. SME Advance has been specifically-designed to suit smaller companies and thus does not require more than only basic financial and operational company information.

The product also offers an interest-only period option for start-up businesses with a tighter cash flow, an extended tenor of up to five years and a simple online application process. Business assets and collateral are not mandatory and the product also boasts the flexibility of zero early settlement fees, should a business wish to repay the loan early.

SME Advance is applicable to a range of industry segments, with a clear focus on start-up and younger firms. With this new product, Gulf Finance can offer loans of up to Dh250,000 to businesses with a turnover of up to Dh1 million.

See more information about SME Finance from Gulf Finance