As a result of the COVID-19 pandemic causing business disruptions of an unprecedented scale, alternative lender Lumi has today called for lenders to put aside their differences and create partnerships to avoid finance bottlenecks in light of the government’s $15b injection announcement to small business loans.
Due to the data and technology capabilities Lumi and other Fintech providers have built to compete with the big banks, these platforms are now the ideal conduit for getting small business owners the cash they need, and fast, during these challenging times.
For the new stimulus policy to be effective, it should have the following features:
Effective deployment of funds (fast deployment, universal reach irrespective of physical infrastructure and appropriate allocation of funds.)
Ensuring the funds are allocated in a manner that best achieves the stated policy objectives; and
Ensuring that the conduit’s incentives are aligned by having “skin in the game”.
Yanir Yakutiel, CEO of Lumi says, “As a technology enabled online SME lender, Lumi is extremely well positioned as both a data collector to assist policy makers in their decision making process as well as to act as a conduit for both Government (broadly defined as any Commonwealth or state department or agency, AOFM & the RBA) and the banking system to distribute stimulus monies and other policy driven credit products.
“With the banking sector getting large amounts of liquidity from the government to support SMEs, it still remains technologically and institutionally unprepared to lend this money out to SMEs to implement the Government’s policy efficiently and quickly enough. We’ve seen this kind of bottlenecking countless times before, both in Australia and around the world. We can’t afford to see this happen again. Now is the time for Fintech lenders like ourselves to do our part and show how the platforms we have built can help banks scale to the size of the challenge, quickly, in a challenging operational environment.” said Mr Yakutiel.
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The bottleneck of the issue is the banks’ and the government’s lack of ability to:
Process large volumes of applications (relative to size);
Underwrite SME risk efficiently;
Originate, underwrite and settle transactions online;
Monitor and service portfolios of small loans efficiently; and
Manage hardship and other rescheduling and NPL activities flexibly.
Fintechs to become conduits for funds
When abstracting Fintech lenders such as Lumi’s business, they tend to carry out two distinct functions:
It takes credit risk based on its predefined credit appetite.
It originates, underwrites and services SME loans.
Up to now, those two activities were interlinked, but Mr Yakutiel says there is no reason why this should remain the case.
“To help the government and the banks implement their policies, Lumi is able to act as a conduit. Lumi has the origination, underwriting and servicing capacity, as well as the distribution channels, to reach the SMEs that need the policy loans the most and most urgently.
“The government and/or the banks could create a pool of capital that is set up in a trust or a warehouse facility. Multiple trusts/warehouses can be set up to achieve various policy tools (i.e. distinct pools for specific geographies and industries),” said Mr Yakutiel.
Going hand-in-hand, not competing tooth and nail
Key to this proposal, is the government and/or the banks defining underwriting, pricing and term parameters with alternative lenders.
Based on those parameters, alternative lenders such as Lumi can originate the loans.
“If we work together, Fintechs will become a catalyst for the stimulus package, massively increasing the effectiveness and speed with which the funds are distributed. We all need to put aside business rivalries and do our part,” concluded Mr Yakutiel.