Traditional financial institutions cater to the short tail of vendor and distributor bases of large enterprises, leaving a large segment of business unaddressed. Supply chain financing fintechs can fill this lacuna.
India’s invoice financing business, which stands at over a whopping INR 8 lakh crore, was historically the domain of traditional financial institutions (FI). Now a growing number of fintechs like CredAble are servicing this domain.
The reason is simple – they are more agile than traditional FIs, can customize products and implement technology into their solutions easily and with quicker turnaround times than the incumbents. In fact, most scalable programs are run in tandem with fintechs and banks as partners, pointed out Nirav Choksi, Co-Founder and CEO, CredAble.
While recent banking collapses – like Yes Bank and PMC Bank – have affected investor and consumer sentiment, India still remains a credit hungry economy, where demand exceeds supply. “MSMEs are increasingly looking towards fintechs as their single source of contact to multiple financiers. Fintech marketplaces act as aggregators and provide MSMEs with several avenues of financing, which provides them comfort in an environment that is shying away from aggressive lending,” he noted.
The Yes Bank incident was a clear example of growth taking priority over credit, which can have disastrous consequences if mismanaged. Investor and creditor sentiment have clearly been damaged by this fiasco, which will limit the risk appetite of most FIs, especially towards the unorganized sector which gets completely left out of the fold.
The Coronavirus pandemic has further aggravated matters as traditional banks are trying to manage their operations and their liquidity. In such a scenario, supply financing fintechs with strong investor backing can provide MSME companies with adequate supply chain liquidity cushion and optimal working capital.
Talking about this, Choksi said, “Traditional financial institutions typically cater to the short tail of vendor and distributor bases of large enterprises. Although these form a bulk of the total payables and receivables, they typically make up only ~20-30 percent of the vendor/distributor base, which leaves a large segment of the universe unaddressed. Supply chain financing fintechs can fill this lacuna. Through innovative structuring that mitigates risk, and investment in robust technology, they find a way to serve the underserved.”
Since they are inherently tech-led organizations, fintechs can leverage technology as a tool to mitigate risk in financial transactions and avoid frauds. CredAble, for instance, deploys both internal and third-party technology to minimize its risk exposure. An internally developed Credit Risk Assessment Model aids its credit and business teams in determining which companies and industries to take exposure to. Its platforms are built by an in-house technology team that has several risk mitigants and dedupe engines to flag off any potential risks or frauds immediately.CredAble has also partnered with MonetaGo, which utilizes blockchain to avoid double-financing of invoices and prevents fraud. In the long run, it has the capability to become a completely blockchain-enabled platform, doing away with physical verification completely – leading the way for other fintechs to follow.