In the light of Covid-19 pandemic, more and more corporates are reckoning the necessity of supply chain finance to their partner ecosystem.
India’s supply chain finance market is worth around $100 billion a month, of which only $45 billion comes through the formal route, while the rest is funded by money lenders and other informal routes. Several NBFCs and FinTechs have been offering supply chain finance solutions across the country, boosting economic activity.
One of the major supply chain finance solution provider in India is Vayana Network that has already crossed $5 billion marks in trade finance earlier this year and now aims to double the disbursements through its platform to $10 billion by March 2022. In the last 8 months amidst the pandemic, the FinTech provided $1 billion in supply chain financing solution to companies across 25 industries, as it claimed.
Funded by Chiratae Ventures of Bengaluru, IDG Ventures, and Jungle Ventures of Singapore; with a total investment of $8 million, the company provides credits to its clients from banks and NBFCs. Currently, it is claimed to be processing around Rs 3,000 crore every month.
Autofintechs spoke to Vinod Parmar, Global Head – Sales and Marketing of Vayana Network to learn about the current scenario and way ahead for supply chain finance in India.
Edited excerpts below.
Q. How the supply chain finance across several industries have been impacted due to the economic crisis and pandemic? How the sector is turning back from that?
Supply chain finance did see a hold up in Q1 and early Q2, but lesser than what corporate and SME lending went through. Overall lending to sectors like auto, consumer, fashion, retail, etc., saw a slowdown but has smartly bounced back in sectors like auto.
In fact, consumption-led sectors like FMCG and Pharma saw more than 25% surge in demand for supply chain finance. Post the pandemic set in more and more corporates are reckoning the necessity of supply chain finance to their partner ecosystem, akin to oxygen for our bodies.
Q. Allowance of the banking license to large corporate houses has been a highly controversial issue. How do you see this decision bringing the conflict of interest in the Indian banking and financing industry?
Looking at the banking and financing demands of our economy, India certainly needs innovative players and fresh capital. Whether corporates houses should be allowed should be subject to the regulator’s ability to control and monitor conflict situations, and also keeping dubious candidates at bay. We will see new players emerge over the coming decade.
SMEs continue to face a cash crunch with lower business churn and delayed receivables.
Q. How the RBI moratorium has impacted supply chain finance sector?
With trade impacted through Q1 & Q2, the moratorium certainly avoided an immediate disaster for SME borrowers. However, it needs to be seen how does the credit performance evolve in Q4 and beyond.
SMEs who availed supply chain finance have certainly benefitted from the moratorium, as they got time to manage operational cashflows in this period, and are now getting core business back to track. This will reflect in sharply better credit performance.
Q. How digitalisation and other technologies are disrupting the supply chain financing sector?
Supply chain finance connects multiple players in the B2B ecosystem and is operationally intensive. Digitization thus can bring in serious efficiencies and ability to scale portfolios. The key though is to avoid digital friction and to not thrust standardized models of engagements like portals and apps over unsuspecting SMEs.
Every business is unique, technology should be an invisible enabler in simplifying access to finance while keeping costs low. Intelligent platforms have emerged who by partnering with banks and institutions are now offering the best of both worlds to the SMEs in supply chains.
Q. Vayana Networks has already completed $5 bn financings. What is the next target and how do you see the company on the profit path?
As one of the earliest and largest enablers of supply chain finance, we are seeing a surge in interest from supply chains and lenders alike. We expect to double the financing enabled to $10 bn by 2022. Being a tech-first company we have delivered this growth with a very lean team with fully automated processes.
The core product lines are already operationally profitable for us. We continue to invest in building out solutions for deepening the reach of supply chain finance to the long tail and multiple tiers of supply chains, with the same ease and comfort like a Corporate.
Q. Liquidity crisis has been a major problem in the Indian economy for the last two years. What’s the current scenario? Can you put some light on this?
Liquidity is a very polarizing word in the Indian economy today. Large Institutions and Corporates are flushed with excess liquidity and are being forced to park their treasury surpluses in low yielding assets. The SMEs on the other hand continue to face a cash crunch with lower business churn and delayed receivables.
The central bank has managed to keep liquidity comfortable at the macro level, however, only a sustained recovery in demand will improve the liquidity position for the SMEs and a marginal section of the society.