India is probably a unique market in the evolution of its banking cycle. On one hand, we have the most advanced tech stacks and product propositions for advanced payments and settlements with money being transferred in a matter of seconds. On the other hand, we have millions of small and medium enterprises who are starved for credit and this problem remains unresolved to a large extent. However, India’s supply chain finance (SCF) story has got an impetus due to the outbreak of the COVID-19 pandemic, which has affected supply chains across sectors.
There has been a need for liquidity and credit to support the sudden shocks suffered in the economic and business fabric of the nation. Today, the main issue to the SCF ecosystem is making the lenders and borrowers meet. While there is demand for capital, the supply of capital to meet that demand is important. The depth of supply of capital is still not comprehensive for the SCF ecosystem, and even if supply is there, it is prohibitive costs that have reduced the offtake.
The supply chain finance sector has not gotten the attention it deserves. At a time when India is looking to build back better, small, and medium enterprises deserve a fair share of affordable and seamless credit to reach them. Let’s look at five ways in which Fintech platforms can help turn around the current situation and bring to life a thriving SCF environment in India.
- Bring capital to the demand:
To bridge the gap we need to bring in-depth on both the originator side and the investor side of the business and get demand to meet supply. Instead of following a product or sales-driven approach, it is advisable to flip the game and introduce an anchor-led model. This entails working with a large company to fund its ecosystem of customers and suppliers. From a platform’s point of view, this helps increase the depths of those anchors on the platform. On the other side, firms should focus on increasing the lender base including investors such as multiple NBFCs, banks, small finance banks.
- Solving roadblocks to supply:
While there is enough awareness on the demand side, managing or maintaining supply is a huge challenge. There is merit in diversifying the pool of investors including foreign banks, large and small NBFCs all on one platform. Firms can further diversify the investor pool to include securitization and High Networth Individual (HNI) investors and even take supply chain finance assets to capital markets.
- Innovating for credit infrastructure:
Since the data is sketchy, lenders have to work with cash flows, invoices, bank statements/GST, etc. Data needs to be organised in one place so that lenders can make quick sound decisions. Anchor-led programmes, as followed at Yubi can help accelerate decision-making because one counterparty is a large corp. The financing transaction is transparent as everyone knows who the counterparts are.
- Going digital:
There are three stages to onboarding SMEs for finance. The digitalisation of the entire documentation process KYC or getting the financials, which is usually called the pre-sanction stage can help reduce friction at all stages. Any company must accommodate end-to-end digital encryption on the platform which in return helps corporate onboardings within 24 hours. These help to expand the access of credit to the lower tier of suppliers & customers and reach the hinterland of India. At Yubi, we have several lenders that already operate end-to-end digitally and reaping the benefits of the same. We ensure that processes are seamless and hassle-free for the lenders and the borrowers.
- Investments in technology:
The COVID-19 pandemic amplified the need for supply chain organizations to seek tools that help them make better and more informed decisions faster. That’s why leading supply chain organizations to use artificial intelligence (AI) and advanced analytics to dig through the vast amounts of data they generate to understand what is happening in their business now and — more important — what is likely to happen in the future.
For a player, who follows these steps to solve multiple problems success is inevitable, in the form of capturing a large market share in supply chain finance in India. Looking at the current business volumes of all players including traditional lenders and new-age Fintech platforms, we seemed to have only scratched the surface. A player who can help solve these multiple problems has a shot at the blue sky for capturing a large market share in supply chain finance in India.