Micro, Small, and Medium Enterprises (MSMEs) businesses are known as the backbone of the Indian economy. According to World Bank data, MSMEs are the largest employers in developing countries despite having the least financial and regulatory support. Considering the significance of MSMEs to economic growth, it is crucial to assist them by removing working capital-related barriers to growth. SCF (supply chain finance) is critical to accelerating MSME growth.
What is supply chain finance (SCF)
SCF refers to technology-based solutions to lower financing costs and increase business efficiency for buyers and sellers in a sales transaction. It helps them by bridging financial gaps and providing desperately needed liquidity.
Why SCF is synonymous with easy financing? Experts decode
Nidhi Aggarwal, Founder, SpaceMantra:
Banks have limited their exposure to MSMEs due to the high cost of service and the risk of lending without adequate collateral. Credit risk assessment is complex for lenders due to a lack of structured financial information, historical cash flow position, repayment trends data, etc. For MSMEs, the direct result of this credit gap is a vicious cycle of high costs, low profitability, stunted growth, and an inability to withstand even minor economic shocks. An economic disruption caused by the Covid pandemic has also resulted in an almost immediate tightening of credit terms from lenders for the fortunate few who have access to the banking system. This is where obtaining low-cost financing nature of SCF comes into play in bridging the trust gap by providing lenders additional tools to manage credit risk and expand the scope of financing to include large pools of poorly understood MSMEs.
Anurag Singh Khangarot, Co-founder, Aachho:
Supply Chain Financing (SCF)is a blessing for MSMEs and fast-growing companies. Most of the working capital is blocked in production and during season times say Diwali or weddings, a lot of capital needs to be invested ahead of the occasions to create a larger inventory for smooth operations. During such times SCF can become a saviour and help businesses fulfill the increased demand without any hiccups.
Ridhima Kansal, Director, Rosemoor:
With the advancement of technology, everything from onboarding to disbursement and settlement can be streamlined, making it easier to advance funds to small businesses without being resource-intensive or negatively impacting the bottom line. Trade Receivable Discounting System (TReDS) platforms enable MSMEs to instantly secure highly subsidized credit from a variety of Banks and NBFCs.
SCF is a solution that would provide numerous benefits to MSMEs. It helps them to streamline their operational cycle and enables them to pay their suppliers on time, thereby bringing in a heightened amount of discipline and efficiency in the overall system.
Raghunandan Saraf, Founder & CEO, Saraf Furniture
The structured nature of SCF transactions allows lenders to onboard more partners because the documentation and underwriting process are simplified and less time-consuming. With the advancement of technology, everything from onboarding to disbursement and settlement can be streamlined, making it easier to advance funds to small businesses without being resource-intensive or negatively impacting the bottom line. Trade Receivable Discounting System (TReDS) platforms also enable MSMEs to instantly secure highly subsidized credit from a variety of Banks and NBFCs. Thus SCF is a solution that would provide numerous benefits to MSMEs. It is pertinent to educate MSMEs and their anchors about such options for improving cash flow.
