Finance innovator takes the fast road to China
Thursday, 17 April 2008
Last Updated: Thursday, 17 April 2008
By Mike Preston
Serial finance entrepreneur Clive Isenberg’s latest venture, Octet, is his answer to a question that has plagued many an entrepreneur: How do you make money from China?
Octet, founded late last year, provides short-term credit to Australian small and medium enterprises importing from China, without the need to give personal guarantees or agree to charges over business assets or property.
Isenberg first saw the potential in China when the Australian manufacturing customers of his cashflow finance company, Scottish Pacific, started disappearing in the late 1980s and early 1990s.
Realising that manufacturing was shifting in a big way to China, Isenberg shifted Scottish Pacific’s focus to the fast growing services sector. Ticking away in the back of his head was another business idea – lending to small and medium manufacturers in China.
After selling Scottish Pacific in 2000 for $42 million and a four year stint running St George Bank’s business customer division, Isenberg started pursuing his China plan in earnest.
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But there was a problem. Entry to China can be difficult at the best of times, but a foreigner seeking to establish an independent financial company there faces almost insurmountable regulatory obstacles.
“You need a license to set up a finance company there, and it is impossible to get – it is a very, very restricted market. You can’t start a finance company there without government approval and we just realised it would be impossible to get.”
Instead, Isenberg decided to approach the Chinese market from the other direction, establishing Octet to provide credit to Australian importers to fund the purchase of goods from Chinese manufacturers.
Isenberg believes there is an opening for a credit provider in the segment because of the tough terms of trade imposed by most Chinese exporters and the high cost of obtaining finance for Australian small and medium businesses.
Most Chinese manufacturers export on either an immediate payment, letter of credit or cash on delivery basis, leaving the Australian importer out of pocket until it on-sells to the consumer.
And smaller Australian importers often have to pay through the nose to obtain finance to cover the resulting hole in their cashflow, with banks generally requiring a guarantee or some form of security over business or personal assets before they will provide credit to smaller businesses.
Octet will operate in space left vacant by the banks by providing unsecured import finance of up to $1 million to businesses importing from China at rates equivalent to overdraft rates charged by banks.
“It really works like a credit card,” Isenberg says. “It’s a supplement to your main source of finance designed to make purchasing easier and more efficient that you repay and re-use on a short term basis.”
The system also operates like a credit card in a literal sense – both the exporter and the importer is issued with a smartcard and reader that allows them to confirm the transfer of funds from Octet via the importer to the exporter at the same time as the purchase order is processed.