(Bloomberg) -- Governments in the Gulf have been fighting to bring investment onshore, as sovereign wealth funds invest vast sums of money abroad. It’s been an uphill battle, but global lenders are taking notice of one niche area: consumer loans.
In a region characterized by gargantuan shopping malls and luxury goods, global private credit funds and banks are seeing opportunity in offering loans to startups focused on payments and consumer lending that are hungry for debt.
Last week, Quantix Technology Projects, which operates the CashNow consumer lending platform, received a $500 million asset-backed securitization financing from Citigroup Inc., marking the latest example of a foreign bank entering the Middle East consumer finance market.
Fintechs dedicated to consumer lending and buy-now, pay-later financing have cropped up in recent years to offer loans to consumers. They can then package the loans and get debt financing backed by those pools.
Local banks, which dominate in the Middle East, are focused elsewhere.
“It’s a very consumer-driven economy and the banks are frankly not geared up for innovation in that environment,” Salim Nathoo, a lawyer and partner at A&O Shearman said. “They have a conservatism that doesn’t let them lend into fintech platforms.”
However, these startups make a good fit for global private credit firms and some enterprising banks looking to diversify away from corporate lending and deploy money in securitized products. Blackstone Inc. is one firm raising capital to invest in the global asset-backed finance market, estimated to be between $5 trillion and $10 trillion.
Asset-backed lender Avellinia Capital Ltd. founding partner Matthias Dux said he has met with a number of fintechs in the Middle East, including Beehive, a marketplace for peer-to-peer lending, and Erad, a growth capital firm for startups. Representatives for Erad and Beehive declined to comment.
Tabby, a local financial app, closed a $700 million debt financing deal with JPMorgan Chase & Co. last December, while Tamara closed a $400 million warehouse facility the previous month.
“We’re finding some interesting opportunities in the Middle East, as there is a funding gap not addressed by the banks in both the SME and consumer financing space, which the fintechs are setting out to fill,” Dux said.
Domestic Dominance
For years, global funds such as BlackRock Inc. and Blackstone have flocked to the Middle East to raise capital, targeting state-backed investors and massive family offices. But to date, international firms have done little by way of investing locally, despite efforts from regional governments.
The Middle East has seen few private debt deals and funds, with the value of the latter vehicles in the hundreds of millions of dollars. Since 2020 less than $500 million has been raised in private credit funds dedicated to the Middle East, according to the Global Private Capital Association.
Two factors have generally kept international investors out of the Middle East, said Allen & Overy’s Nathoo.
“The first is the dominance of the domestic banks, which crowded out other investors and the second is there is great uncertainty in laws around the Gulf Cooperation Council in particular,” he said.
But with local banks generally uninterested in consumer finance, global players have a chance to step in and these types of securitizations appear to be a small bright spot in a dearth of opportunity.
Attitudes toward investments in the region are also changing, especially as investors are seeing more legal certainty, particularly in Saudi Arabia, Nathoo said. Some firms are opening up offices in the region, while others, including Brookfield Asset Management, are going steps further in raising funds dedicated to the Middle East.
International investors have also ramped up funding venture debt. In May, Francisco Partners Management provided $90 million in debt for Dubai-based Property Finder to help finance the buyout of an institutional investor.
But the dynamics haven’t yet shifted across all investing, with local players still driving most of the activity, according to Jeff Schlapinski, the managing director of research at the Global Private Capital Association.
©2024 Bloomberg L.P.
