Does Funding + Frameworks = Opportunity?

[Music] hi everybody let's see how we sit I think we might want to scooch yeah no Empty Chairs Simon come closer good afternoon everybody my name is Gabrielle en zurlo and I'm a financial regulator here at adgm I'm absolutely pleased to be joined with my guest hello I have a of Lulu Finn who is I would say our local star for today's session we have Franchesco filia from fanara who is usually based in London I believe but comes in and out once a month correct yes almost every month and our newest I guess arrival newcomer Simon Kim from hashed uh you may have seen quite a bit of hash activations here at ad AB Finance week um you will be setting up a fun soon in adgm so we'll be seeing you for much more frequently but normally you are based in South Korea oh yeah so correct well welcome gentlemen thank you so our panel is has an interesting name so does funding plus Frameworks equals opportunity right so obviously we have Frameworks we have regulatory Frameworks we have Frameworks in terms of how you actually structure out your businesses but I think today what we really want to talk about is because you are all coming from very different types of finan finial businesses we really want to know how are you essentially getting more funding to the either smmes funding to people that last mile delivery we were talking about earlier how are we essentially managing to be good C corporate citizens when it comes to liquidity providing to people now I'm going to ask you first if you could please introduce yourselves very briefly please please go ahead thank you very much um lovely to be here uh on the third edition of the Abu Dhabi Finance week um I represent Lulu Financial Holdings which is an investment firm so predominantly fintechs um uh crossb remittance uh in in almost nine odd countries we invest into digital Banks we invest to micr lending platforms so wide varieties um of of investment portfolios uh we present in nine countries everywhere in GCC uh India in the in the in the subcontinent and in Philippines Singapore Malaysia and Hong Kong in the Far East now we started as a crossborder uh payment provider uh predominently in the in the GCC started in 2009 and quickly came to understand that there is a large amount of requirement to the smme and the msme that we are catering into if you look at the the recent data from uh the international Finance Corporation around 62 million ummes on the or 40% of the the formal channel of smmes and msmes have have a funding gap of close to 5 trillion which is around 1.4% above what is currently been available for them across the globe now this is a very important aspect to look inside because this gets associated with the job creation in each of the markets now as you know in every economy one of the largest challenges faced by the government is to create more and more job opportunities for its citizens and here is where the smme and the SMA and the msmes com into play predominantly why because these are the lifeblood of every economy this is where the action takes place but unfortunately this is where the least amount of credit actually goes into now here is where in the last couple of years we have seen the finex play a very important role Bridging the Gap of the funding requirements this is also traditionally done through the the partnership with with the banks and many other private funding Institutes but predominantly for the banks to even understand its own customers more betterly and more efficiently this is where the fintex comes into play predominantly they've been able to grasp in more number of datas that is required for a credit approval to take place use of AI use of open banking so if you really take up the report from the from the UK you find out that you know today almost 60% of the entire uhme and msme application have have barely reduced on on timings pradon because of the adoptation of open banking in UK and this is true to many countries that that we have seen that we have operating under open banking has become a revolutionary thing in most of the countries and you know had giving access to fex to participate on the larger uh and broader uh game along with major major financial institutions and also private credit suppliers have really helped the smmes to bridge the gap is is it enough no I think so there's a long way for us to go and I think so that's where people like us and many other institutions come into action thank you Franchesco please so thank you Gabrielle thank you adgm for the invite uh fanara capital is an ass manager and a technology platform uh we have we are at quartered in London we manage uh $5 billion in asset and the management uh fully dedicated to the digital future of financial services which to US mean really being specialized at lending to smmes and individuals through a range of fintech platforms globally uh and also doing cryptocurrency trading high frequency Market making Etc so the old firm is dedicated to Digital Landing and digital assets uh within Digital Landing we operate through fex we are an incubator accelerator for some of these fex we have more than 140 in 60 countries uh we operate also across the GCC region and uh uh what we do is lending to smmes but also individuals and within those two main buckets you have all sort of lending Under the Sun so from loans to supply chain Finance uh to uh invoice discounting to revenue based Finance point of self financing buy now pay later Consumer loans personal loans real estate back loans and all the sorts and we have specialized that developing uh software and a data analytics in order to be able to do our job efficiently today we have been doing it for 13 years we have cumulatively lent $85 billion to the market over these number of years and uh and uh and we plan to increase it over time and primarily our backing is from institutional investors insurance company Pension funds and Banks and growingly more and more Banks as a deep said banks are a good partners uh a good partner for what we do uh despite the fact that we try to push the boundaries of innovation and do it digitally instead of just analogically wonderful thank you Simon please I know you you don't do credit lending that's for sure however please tell us a little bit about hash yeah so uh hi everyone my name is Simon Kim I a co-founder and managing partner CEO at hashid hashid is one of the uh largest and active early stage venture capital for blockchain and web industry in Asia Market so so far we have invested more than 200 uh innovative blockchain related tech companies all around the world and also uh we position ourselves not just as a venture capital but also as a u ecosystem Builder so we have some um company Builders uh just as a venture studio for building some of the infrastructure of the big Financial companies so we we made a joint venture with the largest bank in Korea named KB bank for for build the uh Korea's first crypto custodian solution together so uh you know that Korea is one of the most active uh countries for the digital asset and crypto so uh nowadays we are covering 95% of the Korean crypto custodian solution uh and the asset under custody uh grew up to uh 15 billion by uh one year so it's a pretty active and the other example is uh we also made a joint venture with the largest bank in Thailand owned by the Kingdom of Thailand uh actually the bank truly believed that within 10 years the traditional bank will be gone away because of the blockchain technology so the management team of the bank truly wants to rebuild the all the infrastructure with the blockchain and web technology so now we are building the uh account Wallet account abstraction wallet for the institution and also stable coin infra and membership tokenizing infrastructure within blockchain technology and also dig idea as well so uh now we are are building some of the uh proof of proof of concept in Southeast Asia Market as well so uh these days uh we just opened our new office in Abu Dhabi and also looking for the collaboration with some of the uh large financial institution in uh this region to collaborate to support uh blockchain initiative or collaborating thank you so I'm going to take that last point you mentioned before the bit about the uh vvi office but how evidently you do support you know traditional financial institutions right into in transforming themselves into more blockchain like businesses now I will not go down the route of you know Bank bashing at all we don't do that and I don't think anybody here wants to do it because it's always a partnership however we have to admit that you know Bank banks are not always able to service everybody that needs it in the time they need it and at the cost that they need it therefore there is definitely a gap whether you know in funding in credit in all these sorts of lending who who should be playing that who should be in that Gap and plugging that Gap um whether it's for smmes whether it's for more evolved um firms or startups would anyone like to to kick it off yeah so you know the primary reason why we are all here is is is because of the business it's because of the msmes or the smmes or the individual needs of a consumer to actually initiate a transaction and I think so once we have understood that we have come to understand that we have all have boundaries whether it is large Banks because of the regulations that they go through under uh whether it is fintex because of the lack of availability of credit for them to lend or whether it is is private lenders because they also have their own regulations to follow it up you know but you know once an institution start keeping customer as its Center and starts to build everything around it I think so a lot of things starts to unpuzzle uh itself uh whether it is technology for the sake of of uh customer satisfaction technology for the sake of ease of doing business technology for the sake of you know um getting um economic activity um up and running in an in in an economy I think so everybody has their own parts to play I think so nobody can take a a lead to say that you know we are the the real solution providers in the market you know that's not possible you know it needs to be a game of Partnerships whether it is through fintex they have to partner with the banks they have to partner to private lenders technology providers so it's it's it's a it's a it's a Consortium of of of a group of uh like-minded companies that come from a common cause of of understanding the paino of the the consumer or the uh or the uh the company and giving them a solution that that takes them forward you know and that's the way that we at Lulu Financial holding seats it I mean it's a smart voice to look at it Franchesco I mean fanera has been a Pioneer in fintech lending also liquidity providing for when it comes to digital asset space can you tell us how you even like figured out this Gap in the market and you've been quite Su successful at it tell us a little bit more yeah yeah absolutely and the time Gap in the previous argument on banks I mean like we focus on lending right so lending uh you wonder if uh commercial banks are still the only place or the uh Main Place to do it from uh whether they have the right technology but also whether they have the right funding structure so it's very clear that the banks are not the best place where to implement Financial Innovation for various reasons we they cannot be blamed either right they have a lot of regulatory over overburden and overdrive especially after the global financial crisis they have a strong Legacy infrastructure that is difficult to dismantle is a very tougher to build applications on top of it and and you can only be incremental not revolutionary so a number of reasons why it doesn't work the Innovation through it but also from the funding uh structure perspective banks are funded through short data liabilities right they are depositors funding the banks uh for the most part and most of the banks and we have seen the shortcomings of that with the Silicon valet bank with credit SS we have seen the risk of Bank rants within the digital economy Bank rants they become Flash Bank rants or the risk off and so all reasons why perhaps Landing should happen also somewhere else in cooperation with the banks as a source of origination and client service and franchise would you say that it makes more sense to instead of having I guess institutions with large large balance sheets that where you could potentially have uh maybe a slightly bigger risk of contagion it's better to have smaller firms that are actually lending out to these this ecosystem no I think small at the beginning and then growing over time and perhaps accelerating that growth at the very end so I think that scale matters also for fex nowadays we are early stages still in the business and as a deep said that there are constraints in funding requirements but what fenar exist for is to provide Capital to these fex at a time in which they cannot find Capital so we are an incubator early stage we provide them with with the credit facilities of All Sorts across the r classes only after they integrate in Aza through technology and API and but I think that you know scal really helps also in the fch space and the scale also through banks I mean banks have been uh very recently in recent years involved with their originated to distribute model they've handed over some parts of their balance sheets to the large credit managers like a poo KKR and some bits through Partnerships with the fintech lenders where they utilize ftech lenders for the technology The Last Mile but they still operate as the source of clients and franchise and the origination of lead generation of clients I just like to uh make a point here you know uh in in in in uh continuation to the the conversation that we having here our regulator here in in in UA the Central Bank clearly understood that there is a gap of of larger Banks not able to address the smaller segment of people here is where they came out with the new regulations of creating Community Banks now the Community Bank regulations is purely on figuring it out on a Durham based local currency based lending without International exposure finding out to the root of the of the community on going out to the the smaller moment Pop Shop setups understanding their needs whether it's through po financing whether it is for supply chain financing and then you know able to give them that credit I think so that that is a commendable job that the Central Bank of U has has really come out understood the Gap in the market and came out with the regulation of creating a smaller format of a bank that would service the the smaller community and I think so it's been a successful three years of of Journey for them so I think I think that's a phenomenal point I'm going to use this to bounce back to Simon because obviously we're seeing two different scales on one hand we see that sometimes for some communities you need to go simple you need to go small you need to go simple you need to go straight to the source but then for instance Simon you were just telling us about how you are now being as you know a ver a Pioneer in the web 3 in the blockchain space you're being approached by large financial institutions by big banks that are asking you to help them digitally transform right um H how do you see that affecting their end customer as they become you know blockchainbased businesses do do you see that being better for the customer customers being easier to adopt oh yeah so uh so one of the uh best uh user cases of the blockchain technology is uh I let us say it's a stable coin so Yes stable coin is already very powerful so already more than 200 billion of stable coin uh issued on top of public blockchain network and many people uh have haven't recognized yet but the trading volume of the stable coin surpac visas trading volume uh second qu this year so it's already uh happening uh very popular on uh on chain finance and also uh it's a penetrating to the traditional Finance as well so some of the our portfolios are are innovating the limitans or payment using stable coin infrastructure to cutting the fee or combining with the smart contract to uh make a more efficient and more transparent service so uh so this is really happening and the other part is uh so actually in the blockchain ecosystem the credit is not that popular yet so the for the landing side the collateral Landing is a more matured so it's easier to get the collateral from the BTC and eum some of the large cap uh coin it's a very uh using the smart contract it's very easier to make a direct direct lending service to the end users uh but for the credit side uh it's a challenging because there are not that many credit data on blockchain yet so the uh challenging for the next uh era is should be how we can bring the all the obain uh Credit Data uh some of the financial data or some of the private information of the people to the blockchain and combining it uh we can develop more Landing side one of the example from our portfolio is a graj graj is the joint venture from the uh grap uh in Indonesia and the other counter party is Hana life insurance one of the biggest life insurance company in South Korea so the joint venture want to make a credit loan to the gig workers in Indonesia so uh so gig economy is a very popular in Southeast Asia Market but the is uh uh most of the gig gig workers in Southeast Asia want to uh get the salary at the front of the month so so so but there are not that many uh credit but gra itself there are already there are lots of uh data from the gig worker so they can uh make a credit loan to the worker and calling the uh 3% for for the each month the combining it is a 40% of the uh credit P but the problem is uh uh there are are not that many supply for the loan in southeast Station Market so stable coin can solve this issue because the landing rate between the southeast Asia and some of the developed countries a huge gap so in Japan The Landing rate is only 1% and for the Southeast Asian market The Landing rate is up to 30 to 40% by some um people but using the stable coin is a very easily uh sending the landing pool or to the uh southeast Asia Market with a very efficient way so blockchain infrastructure and stable coin is filling the Gap just like this yeah all this helps essentially to what you were saying about last mile delivery yes you know so I was just wanted to add while that was more on a macro level on a micro level we are also piloting something very similar India through our Lulu fin serve where we're trying to wrap up the cbdc um and and convert that into the lending platform on the commercial side which is on the micr level uh lending as such you know and we're also trying to see using of blockchain uh for the use of of doing early wage access as well you know so it's it's it's it's a wonderful way of of of of getting things done to the the smaller segment of the economy yes Francesco now obviously you are lending to much more sophisticated um and technologically savvy firms generally or you're utilizing fintech firms themselves who are um very aware of of of their centel are you seeing actually any demand for stable coins or Fiat reference tokens or anything at all with your friend so it's very funny that very often the like the fintech world uh meaning uh operating through hard currencies and the crypto world or the digital assets World they don't have as much interactions I as I would have expected when when we started this business like they're typically working on a dual track either one or the other however there is more and more platforms doing fintech that they are looking at you know like functionalities on chain of chain uh and like I think this is only going to rise over the over the over the future one of the main area of Interest given the fact that we are active on both in fch landing through this range of finex Landing to the real economy and in the digital assets through our uh digital asset Market making uh expertise which is also very old like a seven years old which by industry standards is veteran status and I think that one of the bridges which is the most easy to see and detect is the tokenization okay of of real world assets ah well and I think that's been the topic all all week I think I've heard I it's definitely on every's mind at this point that's quite up your street well um no no no please sorry Franchesco carry on no no this is no this is it like like so I think that this is the bridge where you can have a lot of asset pools in the real economy tokenized so brought on chain for additional liquidity transparency uh and efficiency but is it also as a means of collateralizing yes so if you are in that case and you have more collateralized loans you're able to maybe lend even more and it gives more security and such do you see this ever happening for smaller segments well we see segments but different types of segments as the same scaringly yes and it is also a wonderful element why because scaringly because it's the the cross water space which was a traditional way of of of moving money has suddenly started utilizing stable coin as its primary use which is the USDA and usdt um as as also a medium of of moving money from from uh one country to another country wonderful why because it it opens up so much possibility on what you can build on top of that one you know so I think so um for us you know the the wave that is hitting Us in the last uh 12 to 24 months is actually forcing us to rethink the the the traditional rails that we have already put inside and now we're trying to break it up and put up all these new rails that is going to open up so much new possibilities well new possibilities is better for consumers ultimately absolutely we are running out of time so I will take uh the advantage I will take advantage of this moment to essentially close us off thank you um gentlemen thank you so much for your time the lesson we've learned today is that there is a financial player for everyone you just have to find them and that the future is tokenized I guess thank you thank you thank you so much everybody [Music]