Arif Bhalwani: Giving Credit Where Credit Is Due

Arif N. Bhalwani Exeleon Magazine

Arif Bhalwani is an investor and entrepreneur who is making access to capital easier for companies that have historically been overlooked by large banks. In 2005 he founded Toronto-based Third Eye Capital, an alternative capital provider which has been a valuable resource for Canadian businesses undergoing change or transition.

Here, he talks with Exeleon Magazine about his company’s beginnings and the future.

Q: What led to the formation of Third Eye Capital? What was the pain point you wanted to address?

Arif Bhalwani: As an entrepreneur who has experienced firsthand the challenges of trying to secure financing in Canada, I can say that it can be a frustrating and discouraging process. Even with a track record of building successful businesses or having a clear plan for growth, entrepreneurs still find that many banks remain reluctant to lend. This is due in part to the high degree of concentration, stringent regulatory requirements, and conservative lending practices of Canadian banks, which typically prioritize low-risk borrowers with established histories of profitability and ample collateral. Without access to funding, entrepreneurs may be forced to delay or scale back their plans or abandon them altogether. This can prevent new ideas from being brought to market and limit the growth potential of existing businesses, ultimately slowing economic growth and sifting innovation.

Given the stability and soundness of our banks, it is embarrassing to see other countries have more flexible or supportive lending environments. According to the World Economic Forum’s Global Competitiveness Report, even emerging market countries such as Estonia, China, and Malaysia rank higher than Canada in terms of access to financing.

The concentration of banking in Canada can be seen clearly by the numbers: the top six banks control three quarters of market share in consumer banking, small business loans, commercial lending and wholesale banking. In wealth management, the market concentration is 80 percent.

The situation is different in the U.S. when it comes to bank lending. Institutional investors and private funds south of our border provide the bulk of capital that firms rely upon. Increasingly, banks in Canada are generating more of their income from fees instead of interest so there is little motivation to disturb this lower risk means of generating profits. Banks here have become very comfortable with this arrangement, so much so that many often do not view lending as one of their core businesses. Extending credit to companies in complex situations or that are facing temporary and challenging setbacks is seen as too risky, time consuming, and a poor return on investment.

In Canada, loans today represent a smaller proportion of the assets of large banks than at any time in the past 100 years. There are easier ways for banks to make money, as a result of deregulation. These banks can generate money with a few clicks of a mouse, simply by moving cash around on a screen. There’s much less risk and effort involved in that.

We at Third Eye Capital are in the business of taking on risks that banks perceive as being too high and we are willing to invest the time and rigorous work to understand those risks. In fact, it’s one of the most exciting parts of the job — discovering hidden opportunities, sparking ideas with talented entrepreneurs, and being part of something new and special, something that contributes to the overall economy and society.

Canada needs policies to grow the much-needed market segment of alternative lenders. What we advocate is greater sources of capital that will open up new financing opportunities for Canadian businesses, while raising the standard of living for all Canadians.

Q: Brief us about your growing up years. What is your earliest memory as an entrepreneur that you can remember?

Arif Bhalwani: My childhood memories often center on struggle and privation. My family was expelled from Uganda in the 1970s, as a result of the dictatorship that had taken hold of the country. We spent years in an Austrian refugee camp before coming to Canada.

This is probably how I developed the courage and resiliency to become an entrepreneur. I started running my own businesses at a very young age, first out of necessity but later because it was fun and never feels like work. My first “real” business that actually impacted my livelihood was a personal computer services company that I started and sold when I was in highschool. By the time I was in my mid-20s I had already helped found and manage eight different businesses. That exposed me to all sorts of demands and disciplines that can’t be taught in a classroom, and energetically focused me on solving real problems and adding value to my customers’ lives.

Q: Finally, what does the future look like for Third Eye Capital?

Arif Bhalwani: We believe it is an incredible time to be an alternative provider of capital in credit markets today. The stigma that used to be associated with not being able to secure a loan from a chartered bank is decreasing as firms like ours become more widely accepted and recognized as a value-added capital solutions provider. This is at a time when banks are reining in risk, reducing lending, and shoring up reserves due to tighter financial conditions and greater economic uncertainty in the market. There are a lot of credit gaps being faced by businesses and we hope to fill some of them.

Check out interviews of various other leaders and entrepreneurs by clicking here.

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