Making way for the era of tech-driven supply chain financing
It wouldn’t be a stretch to say that supply chain financing (SCF) is as old as the concept of money itself (in fact, credit is older than money). Its oldest examples - such as forms of bills of exchange - were discovered on Babylonian clay tablets dated around 3000 BC.
We’ve come a long way since then - large banks have become the main lenders of trade finance, including SCF, funding more than 80% of the flows. When delivered well, supply chain financing benefits every stakeholder involved.
However, traditional SCF has long been focused on large corporations. The small, less-financed businesses have been left in the lurch. These MSMEs constitute an average of 70% of the global supply chain - and in India, the sector’s credit gap stands at INR 25 trillion.
In 2020, the impact of COVID-19 led to an increased demand for SCF. Early in the year, PrimeRevenue Inc, a platform that pools funding from banks into supply chain finance programs, facilitated $10 billion in early payments, a 5.6% increase year over year.
This, coupled with accelerating digital adoption and FinTech innovation, has led to the rise of new FinTech SCF players who are offering MSMEs what they need, exactly when they need it. According to this PWC report, the availability of SCF for MSMEs will ease working capital pressure and enhance supply chain linkages as India moves towards expanding its export market.
How New-Age Supply Chain Financing will ease the MSME credit gap
Improved risk assessment: Companies offering SCF leverage data and state of the art analytics to better assess the network of buyers and suppliers and assess risk accurately. Their technology-driven risk mitigation techniques lower financing costs and improve business efficiency of buyers and sellers in a trade transaction.
PoS financing: Supply chain finance FinTechs are embracing a partnership model to gain access to a wider user base and offer point of sale (PoS) financing for marketplace buyers and suppliers.
Innovative products: Supply chain finance FinTechs offer CAPEX discounting - which is a one-shot credit solution with flexible repayment options to finance equipment purchases.
FinTechs have raced forward in the B2B lending race by focusing on the needs of the MSME segment. Powered by technology, they’ve launched multiple solutions and products to enable seamless transactions between buyers and suppliers. The digitization era is set to propel an age-old supply chain financing problem into a new paradigm where it’ll not only become more efficient but more equitable.
Exciting times ahead!
Traditional credit products have several shortcomings when it comes to meeting the dynamic financing needs of the Indian MSME sector. However, Embedded Finance - that enables alternative data underwriting and sachetization of loans - can fill this gap,
Download our E-book for a crash course on this disruptive wave in FinTech that’s transforming the B2B lending landscape.
