Description

Small businesses are at the heart of most economies. Yet their combination of high risk and opacity with uncertain return dissuades banks and other investors from providing the necessary financial backing to get a business off the ground. Overcoming the significant asymmetries of information is simply not seen as worth the high transaction costs required.

Technology – particularly digitalization and data analytics – has in recent years lowered the transaction costs of small business lending through web portal loan application systems and automated systems capable of analyzing varied data sources indicative of the borrower’s solvency and stability. Ownership of this data by large service providers has, in this new market, tended to indicate a potential capture of small business buyers by the lending firms with the largest networks.

This paper sketches the parameters of an application for the ‘smart precision financing’ of small businesses, through an analysis of the legal and technological innovations that could be introduced to make such financing simpler while allowing the market to retain dynamism, thus increasing funding and funding options available to small businesses. The precision financing concept seeks to decrease information asymmetry and transaction costs while also limiting agency risk of a borrower misapplying funds. The recommendations offered are also designed to be complementary to eventual business growth toward venture capital investment.

About The Speaker

David C. Donald is a Professor in the Law Faculty of The Chinese University of Hong Kong and Executive Director of CUHK’s Centre for Financial Regulation and Economic Development. David previously taught at the Institute for Law and Finance of the University of Frankfurt, Germany and worked as a commercial lawyer in the US and Europe. His publications focus on corporate law and securities market structure, with an emphasis on comparative law issues and new technology. David is a member of the editorial boards of the Asian Journal of Comparative Law and the Taiwan Law Review. David also collaborates with the Cambridge Centre for Alternative Finance and is currently engaged in a multi-institutional research project entitled, “Balancing the Opportunities and Risks of Financial Technology: FinTech Regulation and Policy.”

Who Should Attend

Academics, banking lawyers, in-house bank counsel, policymakers