Advances in technology are changing the dynamics of the supply chain finance ecosystem


Micro-Small and Medium Enterprises (MSMEs) have grown tremendously over the years. An annual report by KPMG said their contribution to India’s GDP was 8% in 2011-2012 and is expected to reach 15% by 2020. Actual FY20 figures are well over 30% and employ more than 11 million people.

Today, MSMEs are the driving force behind the ‘Aatmanirbhar Bharat’, ‘Make in India’ and ‘Vocal for Local’ initiatives. The sector bravely faces supply chain disruptions caused by the pandemic, ongoing geopolitical issues between Russia and Ukraine, and frequent lockdowns in China due to ensuing waves of covid-19. Despite such significant contributions and fierce struggle against all odds, MSMEs are struggling to become part of the mainstream financial ecosystem.

A sustainable supply chain finance (SCF) ecosystem is the need of the hour to provide businesses with low-cost, rapid access to cash flow to meet their working capital needs and optimize production cycles. exploitation. Invoice discounting facilitates suppliers by immediately providing cash on hand against unpaid invoices. Although discounted, sellers get instant liquidity rather than following buyers asking for an extended credit period.

Technological Advancements in the SCF Ecosystem

The SCF ecosystem is witnessing a paradigm shift with the adoption of digital.

Advances in technology, increased availability of data, and improved transparency and visibility into business transactions are changing the dynamics of the SCF ecosystem.

Read also | Factoring Services – The most effective low-cost working capital solution for MSMEs

Cash is the lifeline for business growth and is a constant concern as the working capital deficit widens. Automating cash inflows and outflows helps companies anticipate and address working capital shortfalls. Artificial intelligence and machine learning techniques provide real-time predictions about changes in payment patterns to help businesses take quick action to avoid cash flow mismatch.

Additionally, MSMEs continued to struggle to access cost-effective finance from traditional lending channels. Fintechs are leveraging technology in the lending space with bespoke ML models using alternative data to overcome challenges due to lack of credit history or low credit scores. This helps banks and NBFCs transition from an asset-based lending model to a cash-flow-based lending model. AI provides deeper insights into redemption patterns and forecasts on seasonality and defaults using alternative data such as GST data, inventory, transaction history, national economic factors, trends sectors, mobile data, etc.

With the advent of technologies such as blockchain, supply chain finance can widely spread its wings to lend to cross-border trade. Since many parties are involved, validating shipments is a cumbersome task. Blockchain eliminates central authority and makes the process transparent as all parties can see the contract transparently. Blockchain can provide inclusive alternative finance with access to a well-structured framework when global supply chains are disrupted in sectors such as electronics, automotive, pharmaceuticals and many more.

Read also | MSMEs must leverage modern technologies and innovate to survive and thrive: Harish Gupta, Head-IT, CGTMSE

In the pre-pandemic era, supply chain finance primarily addressed post-shipment financing needs. However, small businesses are looking for pre-shipment financing in the post-pandemic realm. The future has a lot of scope in this segment. AI and ML algorithms can help forecast potential financing opportunities from pre-shipment to post-shipment and prevent associated risks.

The future scope

With SCF emerging as an alternative financing method with a robust digital infrastructure, the contribution of MSMEs to GDP and exports may further increase in the near future. A thriving supply chain finance market can play a key role in India’s economic growth. Greater competition in this segment will accelerate the current scale and pace to meet a wide range of solutions. Innovative approaches can meet the different and varied needs of suppliers at each level of the supply chain.

Attributed to Arun Poojari, Co-Founder and CEO, Cashinvoice

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