Leon Emes: How to overcome the challenges funders face in 2021

In my former life as an investment banker I didn’t really pay the world of fintech much heed. In my mind, fintechs were the reserve of tech-savvy millennials or early adopters and not something for a Generation X luddite to pay much attention to. Even after a colleague left the safety of a job in fixed income credit sales to start his own P2P lending platform, I only took marginal notice, too engrossed in my own sphere of credit derivatives and structured debt transactions for such ‘folly’ to warrant my attention.

Fast forward to mid-2019 and my eyes were opened. A good friend of mine asked me to join him at Incomlend, a trade receivables platform he had started earlier that year. Compared to banking, it was like entering a new universe. The mission was simple, to become a leading marketplace focusing on providing funders with access to high quality, credit insured invoices relating to physical goods being shipped around major trade corridors.

Overcoming obstacles 

One of my observations from the beginning was that by staying focused on a core product, fintechs have an advantage. Our thoughts are not clouded by having to compete with other departments for capital or the attention of management as much as they are in large, sprawling institutions. If I want to talk with the founder of the firm now, I simply stand up and walk two desks over. We can discuss ideas, lay out a plan and get things moving quickly. No new product approvals to fill out, no painstaking 6-month approval processes and, best of all, no internal fighting.

Yet, for any business to be successful it must be at the right time and in the right place. For Incomlend, timing could not have been better. Increased regulation, high on-boarding costs, lower leverage requirements and increasing pressure around ESG have all led to reduced appetites of traditional banks to provide finance for trade. There are many numbers touted about the extent of the funding gap, the difference between companies seeking trade finance and those offering it but, in short, banks are struggling to finance the real economy and even when they do, the money flow tends to be directed towards the big boys such as the Trafiguras of the world. In fact, a high degree of the suppliers or buyers who approach us for financing are bankable customers, but many fear that traditional bank financing will simply dry up. Combine this with a comparatively quick on-boarding process and we have a situation where we have no shortage of parties approaching us for working capital solutions. But what about financing these transactions?

Investors in trade finance as an asset class are not new. There are plenty of diversified debt or dedicated trade finance funds which have been reaping steady returns for years. But the asset class had a problem, it was circled with alternative investments (AI), competing with the likes of private equity or private debt. Yet, when I started my new role I saw one thing, not an AI investment but an alternative to FI (fixed income).

We currently live in a world where decisions for buyers of traditional FI are not easy. Thanks to many central bank’s negative rates policies, 25% of the world’s bond markets are yielding below 0% and risk premia as you move down the credit curve are being squeezed, as indicated by tight credit spreads. Yet in trade finance, you can achieve returns that beat high yield bonds, with the self-liquidating maturity profile of commercial paper. Furthermore, returns are uncorrelated to other asset classes (with the benefits to portfolio diversification this brings), default rates are low and it’s easy to mitigate risks with instruments such as credit insurance. It’s no wonder that we are now attracting insurance companies and pension funds as investors, as they struggle to meet their targets with traditional assets.

Attracting such investors is not without its difficulties. A large pension fund is naturally a lot more risk adverse than a hedge fund and will examine the measures a fintech takes to mitigate risks. I’ve met some companies which boast of the strengths of their algorithms in their credit decision processes and how they will offer your company a loan within 24 hours. That’s all well and good, yet maybe a site visit would provide more valuable insights. Or better still, combine the two, and then you have something you can sell to an investor. If there is one thing I learned as a banker, it’s that business is, above all, a human endeavour. There is a need for integrity and accountability that go beyond what we can achieve with technology. Don’t get me wrong, I’m a convert and there has never been a better time for the fintech revolution, but maybe an old dog like me can teach my brave new world a few tricks; afterall, there are times we need to be more ‘fin’ than ‘tech’.


Leon Emes is Head of Funding at Incomlend in Singapore. Incomlend matches buyers and suppliers who want to free capital from their receivables with funders who want to purchase invoices at a discount. Incomlend mitigates risks in the transactions by using credit insurance, employing strong due diligence and utilising a trust structure.

About Lisa Baker, Editor 2363 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.