Hong Kong export credit insurer to cover trade loans made to e-commerce SMEs

Hong Kong Export Credit Insurance Corp (ECIC) has introduced a new insurance cover for trade loans offered by fintech start-up FundPark, which could open much-needed funding for the city's fast-growing e-commerce sector.

As part of the deal with FundPark, ECIC and French reinsurer Scor will provide insurance cover for the trade loan portfolio underwritten by FundPark for Hong Kong-based e-commerce businesses.

Scor will share the ECIC's risks, which will compensate FundPark in case of defaults. The cover will help reduce the credit risks faced by FundPark and consequently encourage more loans to be extended to online merchants in Hong Kong.

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"This is the first credit trade insurance based on alternative data to help Hong Kong-based e-commerce merchants, most of whom are SMEs [small and medium-sized enterprises]," ECIC commissioner Terence Chiu Man-chung said in an interview with the Post. This will allow SMEs to get pre-shipment funding needed to support their businesses, he added.

"The mandate of the ECIC is to use insurance and other solutions to encourage the export trade in Hong Kong," Chiu said. "We believe this new solution will address the pain points of many e-commerce merchants who find it hard to get loans from banks."

Established in 1966, the government-backed ECIC can offer up to HK$80 billion (US$10.26 billion) of insurance cover to more than 100,000 local exporters against risks posed by payment defaults or delays by their overseas clients.

Usually SMEs buy a policy from the ECIC to underwrite their risks, but the new policy is structured differently, with the ECIC offering credit insurance cover for the e-commerce loan extended by FundPark.

Hong Kong-based FundPark, co-founded by Anson Suen Wai-loi in 2016, provides loans ­that lack typical collateral, such as property, but are secured by SMEs' underlying cash flows, inventory or receivables. The company relies on an artificial intelligence-driven credit model to assess borrowers.

Earlier this year, the start-up secured US$500 million from Goldman Sachs, the second funding facility from the US investment bank in two years.

Chiu said the ECIC reviewed the FundPark's credit model and was satisfied with the company's risk controls. FundPark has teamed up with major e-commerce platforms such as Amazon, eBay and Tmall, as well as other logistics firms, to obtain data from these companies.

Since its inception, FundPark has disbursed US$2.5 billion of loans to almost 17,000 SMEs, mainly involved in cross-border e-commerce with US dollar working capital needs.

FundPark, which offers loans from as little as US$5,000 to more than US$1 million, made about half of the loans last year.

The company expects the growth trajectory to continue over the next few years and is targeting to grow its loan book to more than US$10 billion, said Suen, who is also the CEO.

The default ratio is below that of Hong Kong's banking industry, he said. The bad-debt ratio of the city's banks stood at 1.6 per cent at the end of September 2023, according to data from the Hong Kong Monetary Authority.

"While traditional exporters in Hong Kong have faced difficulties in recent years, e-commerce businesses continue to report double-digit growth," Suen said. "The new insurance and funding model will help the many e-commerce merchants in Hong Kong to continue to grow."

Meanwhile, the ECIC will encourage Hong Kong exporters to expand to new markets in Southeast Asia and the Middle East.

"E-commerce provides new opportunities for many exporters in Hong Kong, allowing them to capture new customers in overseas markets without the need to open physical shops," Chiu said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.