Finovate Capital offers supply chain financing to MSMEs a the click of a button:
Contrary to what the name suggests, Finovate Capital is a fintech platform that makes effective use of technology to bring supply chain financing to mainstream. It provides seamless access to funds for MSMEs and SMEs just by the click of a button – working capital for suppliers and at the same time assist lending partners in sourcing pools of borrowers and de-risk transactions by building Early Warning Systems, End Use Control and Ring Fencing of cash flows. In the words of the firm’s founder and CEO Akshat Birla, Finovate Capital’s core competency is its “ability to structure these deals using our very flexible technology platform that makes it easy for lenders to disburse capital and borrowers to get capital at a ‘click of a button’. Our platform integrations (for sourcing) gives us access to large borrower pools, digital access to their historical data and performance helping us incorporate them onto our credit assessment parameters to de-risk lending.”
“We wish to make the platform a ‘one-stop shop’ for MSEs across various banked and unbanked sectors,” he adds.
CHALLENGES FOR SCF
Birla is of the view that supply chain finance, or SCF, has not really picked up among MSMEs in India because of demand and supply side challenges like information asymmetry, high transaction costs, traditional underwriting processes and lower risk appetite. He cites 2 areas, which will be the key drivers for SCF:
One, access to SCF had been traditionally reserved for large corporates and their ‘largish’ suppliers. The smaller suppliers were considered operationally unserviceable given the high reliance on paper heavy process. With digitization of not just the process but also the data.
Two, digitization has been a big driver in ensuring that extremely powerful underwriting algorithms can be created now.
He adds that Finovate Capital is able to completely change the dynamics and bring seamless access to SCF at the lowest levels of the economy in a de-risked and efficient manner. Similarly, combining the traditional data sources with GST, eWay bill, eInvoicing and other alternative data, and bringing in fraud check mechanisms including blockchain systems, the firm has managed to significantly de-risk the lending, making it more efficient and then significantly reduce the operational costs.
A large percentage of Finovate Capital’s borrowers are originated through its strategic partnerships. This means that the company receives most of their initial onboarding data from the platforms directly. With this information pre-populated, the company then sends them a link to verify the information, fill in some basic details and documentation and provide consent to commence the credit facility. All these happens digitally on a personalized login. These onboarded borrowers can now see their approved bills (purchase and/or sales) directly on the platform. Given the platform integration, the company is able to ascertain the genuineness of bills submitted directly without there being a need for borrowers to submit additional information. Also, borrowers may choose to either discount one invoice or bundle them together and discount them collectively just at the click of a button.
He says the opportunity is immense and needs the right execution, pointing out that currently there is ~Rs18,000 billion of MSME/SME commercial credit outstanding in the industry but trade finance (mainly bill discounting and supplier financing) makes up <5%, at best. But with the trend of digitization taking even more steam in the post COVID-19 scenario, combined with maturity and vintage of data in GSTN and other systems, this sector is ripe for disruption.
ONLY MSME TARGET AUDIENCE
Finovate Capital is entirely focused on offering SCF products to MSMEs with or without anchor corporate comfort. On a case by case basis, the company sometimes work with larger corporates to offer them direct lines for purchase bill discounting or sales bill discounting even for their mid or large associate partners on both sides.
Birla describes his venture as an origination, deep credit assessment, disbursement and loan management platform for lenders. It has partnered with various lenders across the spectrum ranging from banks, large NBFCs, new age NBFCs, small NBFCs, regional NBFCs and small finance banks.
He also maintains that the platform is a secure, seamless and easy to integrate solution for partners and borrowers alike. It allows for automatic sharing and processing of data with partner systems without any human intervention. It is application agnostic and offers multiple options to integrate depending on the systems used by the partners and borrowers. Besides, the platform makes use of blockchain to secure and authenticate data. Use of advanced analytics ensures lenders have the necessary insight to evaluate and analyse any application quickly and thoroughly. This significantly improves the experience for both the borrowers and the lenders making the whole process stress free, he adds.