In an interaction with TheSMEIndia, Akshat Birla, Founder & CEO of Finovate Capital, discusses the Fintech industry, the huge gap in the SME finance space, the recovery of automotive and infrastructure industries’ promising future prospects in the wake of the Covid-19 pandemic. Edited Excerpts:
Q. To what extent has normalcy been restored when it comes to supply chain financing in context with Covid-19 disruptions?
Supply chain financing has historically followed the business cycle, but in the post-Covid period, it has become more critical than ever, as companies have recognised the importance of having enough liquidity to mitigate the effect of events like Covid, which threw all payment cycles off track. We at Finovate Capital monitor various indicators, including developments in GST collections and e-way bills, in addition to monitoring the market demand of our corporate clients, which are a great way to keep track of the economy’s return to normalcy.
Q. From which sectors demand for credit is coming in? And which sectors are yet to spring back?
We were fortunate in that we concentrated on evergreen industries like FMCG, Pharma, and Chemicals, which did not experience major disruptions. We saw a significant turnaround in demand for automobiles, as well as for infrastructure. However, real estate, travel and tourism, and hospitality have yet to recover, and it is likely that they will take a long time to do so.
Q. On the lending side, how have you partnered with lenders? Is it purely a platform play or sharing of risk?
Finovate’s lending partnerships have been one of our strengths, and we’ve spent a lot of time developing them and earning lenders’ confidence in our capabilities. We currently have over 20 lenders on the platform, with 10-12 of them being strategic lenders with whom we collaborate closely on credit policies, risk mitigation, early warning signals, and offering a full stack “platform as a service” to meet all of their Supply Chain Financing product needs. The platform is a plug-and-play model that takes little effort to go live and integrates with the lending partner’s existing systems. Integrations for e-Invoicing are now being implemented. Supply Chain Financing is a complicated environment, and there is rarely a one-size-fits-all solution, so there is a lot of customization and structuring that goes on.
Q. What are the challenges with financing MSMEs and SMEs?
Easy access to capital has always been a challenge for MSMEs and small businesses. It’s got worse as informal funding sources are rapidly dwindling, and the need for excess liquidity is at an all-time high due to the uncertainty. Government programmes were beneficial, but not nearly enough to close the gap. Credit penetration is still about 10%, and there is a deficit of nearly 27 lac crores, according to our calculations.
Q. How can SMEs/MSMEs prepare themselves to leverage more formal finance?
Traditional sources of funding would usually need hard collateral and will be limited to the degree of the collateral, making formal financing difficult for SMBs. The power of receivables (typically from large or mid-sized corporations) that can be easily discounted or used as collateral to obtain working capital funding is something that most SMBs overlook. To help with the working capital issue, we’ve partnered with a number of large and mid-sized businesses to provide suppliers and channel partners (Dealers, Distributors, and Retailers) with seamless access to working capital. They can contact us or other similar sites and see if the companies they work with are on our platform so they can start using Invoice Discounting straight away.
Our Corporate/New Age Enterprise partners that sell to a large number of SMBs can also take advantage of our “Buy Now Pay Later” option. Traditionally, such transactions were conducted entirely in cash (upfront payment), but this would worsen SMBs’ cash flow problems and limit their buying capacity.