By Arun Poojari, Co-founder, Cashinvoice
The current economic environment is characterised by recovery and gradual growth. In 2022, the Indian economy is slated to grow as fast as 8.5 percent, according to the IMF. This is much needed in the aftermath of the COVID crisis. With reopening well underway, and with normal patterns of behaviour re-emerging, businesses at all scales have the opportunity to participate in the growth story and get back up after hard times. This is all the more important for India’s millions of MSMEs, which provide the main livelihood to over 100 million Indians. The main challenge here, though, is enabling access to liquidity, empowering businesses to purchase inventory, promote their brand, and expand their reach, to new geographies and demographics. In this context, Supply Chain Financing has become more important than ever. Going into 2022, SCF will be a key avenue by which businesses, large and small, acquire the liquidity to get on their feet and grow.
The way in which SCF works, however, with big businesses playing a major role, means that large corporates will need to set policies vis-a-vis SCF and act in ways that enable funding to MSMEs, a key link in the SCF chain. In this piece, we’ll be going through some of the things corporates need to keep in mind about what they, the government, and other actors can do to protect MSMEs within SCF supply chains.
Driving awareness towards the M and S in MSME
Supply chain financing is not a new concept in the Indian market. However, historically, it was leveraged primarily by MSMEs on the larger end of the spectrum. This means that due to a combination of lack of awareness, lower credit appetites, and the high cost of transactions prior to mass digitization, potentially millions of smaller MSMEs i.e. Micro and Small enterprises have historically been left out of SCF ecosystems. At this point of time, with recovery well underway, the foundational conditions are present for smaller MSMEs to thrive. Access to SCF would give them the liquidity to really achieve success. Generating awareness about public schemes and private SCF platforms is a role corporates could take more proactively, by having conversations with MSME suppliers or through promotions. The end result here should be for a much wider range of MSMEs having access to the financing they need.
Offering favorable financing terms on supply-chain financing in the short to medium term
At a point of time when the liquidity position of MSMEs is critical, the priority of SCF partners should be to maximize their cash on hand, within acceptable limits of risk. Additional liquidity in MSME hands can act as a force multiplier encouraging growth up and down supply chains, as MSMEs get the working capital space to stock inventories more generously, and consider expansion and promotion options to drive growth.
One practical solution to getting more cash in MSME hands is offering more favorable financing terms on supply chain financing. A little can go a long way here -by making upto 100% financing available against the invoices with competitive cost of funding, corporates can help MSMEs hedge for uncertainty and put aside capital for growth.
Focus on secure, Digital SCF platforms
Trust and security are critical factors when it comes to supply chain financing, both to corporates offering credit and MSMEs on the receiving end. Fintech platforms offer both MSMEs and corporates a safe, digitally-enabled, low-friction space to dip their toes into the SCF market.
The benefits here are clear. By connecting the right MSMEs to the right SCF platforms, which can make onboarding easier and transaction frictionless while meeting the quantum of credit requirements, digital SCF platforms can mitigate a good chunk of efforts required as well as friction in terms of using cumbersome, non-digital outlets.
Conclusion
We’re at a critical economic juncture. The national economy is poised for growth as pandemic related factors gradually recede from center stage. This presents MSMEs with an incredible opportunity for growth, assuming that they have access to the right amount of liquidity at the right time. Corporates considering getting into the SCF market can play a major role in stimulating economic growth and better outcomes across the supply chain, while also reaping the direct benefits.
