Deep insights emerge from this fireside chat at NBFC’s Tomorrow Conclave. Edited excerpts:
Panelists
Ganesh Ramani, Chief Business Officer, UNCIA Technologies
Rahul Ghule, Head of SCF, Profectus Capital
Manoj Agarwal, Group Editor, Banking Frontiers (Moderator)
Manoj: Please give an overview of the supply chain finance business at Profectus.
Rahul: Profectus Capital has essentially adopted an anchor-led or a corporate-led model wherein we tie-up with larger corporates. We have tie-ups with Tata Solar, Reddington, Ingram Micro, etc. Through these tie-ups, we funding their distributors for purchases of stocks from all these anchors. We essentially play a very vital role of moving stocks down the entire supply chain from the anchor to the distributors. We have about Rs4.5 bn of portfolio in supply chain financing, which is spread over 22+ anchor corporates with whom we have tie-ups. We started supply chain financing in 2019. During the pandemic, we were able to support all our distributor clients with credit to ensure a smooth flow of goods into the marketplace, which really helped them in a very big way to avoid supply chain disruption.
Manoj: What does the SCF business need more of these days – data or technology or something else?
Rahul: Supply chain finance, as compared to any other line of business as far as financing is concerned, is a very operationally heavy business. In a typical mortgage loan, you disburse once and then you keep getting the repayments. Whereas in SCF, the underlying product is a rotating limit, which means there are a lot of transactions. That is where technology plays a very important role. We have to make the operation easy for the customer. We have to build a very fast paced and flexible solution – that is the main challenge.
Manoj: What has been Uncia’s experience in engaging with NBFC clients? How much do they value speed, flexibility, operational support? What have been their ask from an IT company like yours?
Ganesh: We support both banks and NBFCs as our clients. Supply chain finance is all about B2B. From our standpoint, we understand the line of business of our clients. We have a platform that probably supports every line of business or every line of activity within the supply chain finance ecosystem – whether it is invoice discounting or payables financing or blockchain-based financing or trade finance or dealer finance. What happens is every activity is different.
The anchor-driven business is a 3-party transaction, whereas dealer finance is a 2-party transaction. So, from a technology standpoint, we need to understand the business that our customer is in and then have the platform ready with all the upstream and downstream integrations and interfaces. This is a necessity today for seamless, frictionless operations. Also, there is a need to support it through technology enablement and have the upstream and downstream integrated, which includes integrating with the ERP systems of a supplier or the OEM. That’s where the trick lies, and that is where we have been fairly successful in enabling this for our clients.
We work with some of the large OEM financiers who have supply chain finance as one of their businesses. They are into multiple lines, but supply chain finance is one of their businesses. We have had to integrate not just with the usual fintech aggregators, but with the ERP systems of both the OEMs and the suppliers.
Manoj: Is the range of integration very technology intensive? What kind of intelligence and planning does it require to happen smoothly?
Rahul: I completely buy Ganesh’s point that a good supply chain financing IT solution has to have the capability or the flexibility of integrating with multiple stakeholders. Nowhere is this really essential than in supply chain financing, as it is very essential that the NBFC continuously monitors the customer. Monitoring is obviously a very data heavy exercise. Traditionally, what has been done in supply chain financing is that the assessment is done in the beginning and then once a year when it comes for renewal. So, between two terminal evaluations, the visibility of how the enterprise is doing, whether their business is good or there is some degradation, is something which largely all financiers in SCF domain have been blind to. Continuous monitoring is really missing. Now what is happening is that account aggregation is coming up really fast. It can solve the monitoring aspect of supply chain financing by enabling the financiers to pull out bank statements, GST returns, etc, on a regular basis, and do mini reviews either on a monthly basis or set up early warning systems which are derived out of all these data points. So, the ideal is an IT solution which integrates with the anchors, distributors and suppliers, and which also brings in the account aggregation integration. I am very optimistic about IT companies like Uncia.
Ganesh: We are at in the throes of a complete ecosystem change where account aggregation has become a reality. So far, account aggregation has largely (80%) been in the B2C space. We have spoken to a few account aggregators and they all have intentions of doing a lot of things in the B2B space as well. What we have seen is that API interfaces is the key. It is the only seamless, frictionless way for a heavy load of transactions to be operationalized, tracked, monitored and managed. And that’s the key to any large supply chain finance business being sustainable, because it is a low margin business. You cannot afford much leeway in your operations. It has to be managed through a very slim operative framework at the lender level. So therefore, it requires a technology framework and ecosystem to support and enable this business to scale up, be profitable and improve the margins. So, open APIs and API interfaces with the ecosystem are the order of the day, and that’s what we bring to the table.
Manoj: How easy or difficult is it for a supply chain financer to look at SCF technology companies and identify whether they have the right kind of products to match your needs or not?
Rahul: Different financiers in the supply chain finance domain have different appetites and different business models. So, what I would look for in a supply chain financing solution is the flexibility of being able to house all the business models that exist in the industry. That is very important. Instead of too many partners and too many handoffs, I would prefer an integrated solution.
Manoj: Do you see any other major differentiation between a bank and an NBFC doing supply chain finance?
Ganesh: Mainly the rates.
Rahul: Yes, rates is a very big issue. But appetite is also a clear issue. Because banks, typically prefer to fund the top 15-20% of the opportunity. That leaves a very big mass of distributors whom banks or even the larger NBFCs may not be willing to fund. That is the gap which NBFCs like Profectus Capital is filling. This makes the monitoring really very important. As you come down to the less creditworthy kind of supply chain partners, the monitoring has to be spot on. Second, the way we differentiate ourselves from banks and large NBFCs is the speed of response. About 93% of our transactions at Profectus Capital are disbursed within 60 minutes, which is on account of the supply chain finance portal that we have opened up to the customers where they can raise invoices. The portal itself is integrated with our LMS and LMS is in turn integrated with the bank side. That is giving us a lot of optimization. At the same time, for every tranche, there is a bit of underwriting, which we have digitalized. So, for almost 80% of the transactions, we are able to offer a straight through process. While banks would possibly have this, even the larger NBFCs don’t have a straight through process, which is what the anchor corporates tell us. They’ve really appreciated the speed of operation that we have brought to the table. So, appetite and the ease of operation is how we are different as compared to banks and larger NBFCs.
Manikandan, CredAble (Audience): ERP integration with anchors is technically feasible, but not economically feasible in most cases. From the risk point of view, I would always prefer an ERP level integration because EWS runs better with more data points, more granular data and real time data. It is a chicken and egg story – do you first do the integration and then relax the rule engine or first you relax the rule engine, see some velocity and then integrate at ERP level. How do you manage this kind of impasse?
Rahul Ghule: The question is who is the entity taking the risk. I would always prefer that the API integration is put in place first, because that obviously gives us a lot of assured visibility of a lot of monitoring data. Large corporate work with 4-5 financiers, and doing ERP API integration with each financier is a challenge. While the industry has seen some integrations, the ERP integration has really not taken off at a huge scale. That’s the challenge. I would always prefer that API integration is put in place first to get very good visibility on a regular basis.
Ganesh: Corporate have their own nuances. They wanted to do the integration, but obviously they have their boundary walls beyond which they will not allow integration.
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