Arab Investors Fuel Alternative Lending Options

Arab Investors Fuel Alternative Lending Options
You've probably heard the phrase, "When one door closes, another one opens." Or "When life hands you lemons, make lemonade."
In challenging times, like the current economic crisis that has reached epidemic proportions worldwide, businesses need to recognize that opportunities for growth and success do exist. You just have to be more creative and focused on uncovering them.
With American banks putting a moratorium on lending and some of the financial powers facing closure, the businesses that have relied on them are feeling the stranglehold. Financing your company's growth is difficult. Finding the funding to remain afloat until the economic tide shifts is virtually impossible.
At least it is among the American lenders. Perhaps you should broaden your view and look for that financial support outside the United States. Arab investors, for example, continue to be serious investors with considerable wealth to support their interests. Oil-producing countries-like Kuwait, Qatar, Saudi Arabia and the United Arab Emirates -are rich with investors. In addition these countries have created substantial Sovereign Wealth Funds (SWF)-akin to a state-controlled national savings account-to diversify the revenue streams from their oil surpluses. In a distressed American economy, such opportunities are becoming more and more common.
By identifying high-return investments, SWF managers are amassing staggering wealth for their funds. SWFs in the oil-rich Gulf States are valued at $2 trillion. In 2007, the United Arab Emirates' SWF was worth more than $875 billion. SWF and private equity funds will be leading the way forward with financial allocations. The Middle East has large stores of money in these funds and you should expect to enter the market when the market cap of some firms drops below book value. While investment in the U.S. by Arab investors certainly slowed during the mounting economic crisis of the past few years, the SWFs are showing signs of increased interest here, particularly in the finance and real estate areas.
Your passport to the Arabian finance
Arab investors, especially those with SWFs, will continue to be serious investors with considerable wealth that will be further enhanced by oil revenues where the price of oil is still higher than where it was in the beginning of 2007. But how do you find these individuals and businesses? And once you find them, what do you need to know in order to pique their interest in your venture?
You first must recognize the cultural differences in financial practices. For example, Islamic banks will only fund tangible assets, such as infrastructure and real estate. In addition, according to Islamic law, the banks cannot charge interest or penalties. While that sounds appealing at first glance, you have a different type of price to pay. In return for the funds that they provide in good faith, the investor becomes more of a fiscal partner. According to Vaseehar Hassan Abdul Razack, chairman of Unicorn International Islamic Bank, Islamic banks "will follow through exactly what you want to do and be your partner holding your hands from day one, until the project is completed, and then make sure it is properly completed and that the cash flows are generated according to what they are projected, and then they share an equitable proportion of the profit."
Unlike American lending institutions, Arab investors and Islamic banks will not simply approve a loan and release the funds. Accountability is key in the transaction, which is why their bad debt rate is extremely low. So, be prepared to take on an active participant, not just a funding source.
Next, be fully prepared with the research and documentation that supports your need for the funding and the ability to deliver results-and profits!
"I always look at person who can understand the research that his firm has undertaken," confides a wealthy Jordanian investor explaining that he expects the one making the request to be well-informed. "Typically, the person is the relationship manager. I expect him to relay the research methods that his firm has used, and explain how it translates into investment opportunities."
In my dealings with investors and funding institutions throughout the Middle East, I learned that a proven track record is tantamount to gaining the interest of an Arab investor, Entrepreneurs with a great idea but no demonstrable history will fall off the radar. The confidence that comes with a portfolio of results can translate into a smart investment opportunity, when coupled with comprehensive research, facts, and figures.
Finally, it is essential to recognize the business savvy of the Arab investors. Typically, they are well-versed in western businesses and their way of thinking. Under-estimating that reality will remove you from consideration. As one investor remarked, "A snake oil salesman will immediately turn off the investor."
Substantial wealth exists in the Middle East, but never assume that the amassed monies are spent lavishly. When you're serious about courting finds from these visionaries, be prepared to reach up to their standards if you want to reach into their pockets!
i. Latif, Saher, "Islamic finance: Funding the 'real economy'", INSEAD, knowledge.insead.edu.