CXOToday gave an exclusive interview to Mr. Manish Kumar, CEO and Founder of KredX
- What are the challenges SMEs currently face in export finance and how fintech is mitigating this?
SMEs account for nearly 50% of India’s total export volume, yet they remain one of the underserved segments when it comes to working capital. Factors such as long processing times, warranty claims, lengthy paperwork and other such factors have made working capital very inaccessible to all businesses.
Access to trade finance is severely restricted in the case of MSMEs. The global trade finance gap was estimated at US$1.6 trillion in 2016, and for developing Asian economies alone the gap is estimated at US$692 billion. Limited access to finance, lack of database, low research and development (R&D) spending and low level of financial inclusion have led to stunted growth of SMEs. Addressing these challenges is key to unlocking the business potential of small businesses.
New-era fintech companies like KredX offer small businesses fast, digital, unsecured access to cash against their receivables at market-competitive rates. This offering will provide Indian businesses with the ease and convenience of end-to-end digitized processes to avail working capital, which is unsecured and based on their current business performance and future growth and not historical financial performance. with a transparent pricing structure. . In addition, this financing will complement existing sources of financing for businesses and provide an additional source of financing that supports the growth of SMEs. Additionally, it will provide investors with the opportunity to invest in/gain exposure to a wider range of trade receivables as well as access to credible, real-time information on asset quality, underlying transaction and a wide range of investment structures and risk profiles.
- While banks continue to play a critical role in trade finance for MSMEs, they face technological, operational and other barriers to extending credit. How do fintech companies better serve SMEs?
A crucial factor affecting the ability of MSMEs to obtain finance from traditional banks is the high cost of service associated with MSME finance. Moreover, these banks lag behind in automation and digitization which delays the disbursement time. Without automation, manual handling costs remain too high to serve a huge segment of the MSME market. Moreover, given the long and cumbersome processes, banks usually take weeks or even months to release credit to small businesses which affects the growth of these businesses.
Fintechs have redefined banking by innovating disruptive services and products. The flexibility of fintech solutions is one of the main reasons for the high adoption rate among SMBs. This has empowered MSMEs by giving them the choice to do business and manage financial accounts according to their needs. Moreover, compared to banks, personalization of services by fintechs is another factor that has empowered SMEs. In addition, digital innovation of fintech companies is also building an omnichannel experience for SMEs
- How will export financing be a game-changer for SMEs?
Affordable and easy access to finance is essential for exporting SMEs. Obtaining finance from traditional banks can be complex and cumbersome for MSMEs. New era fintechs are increasingly addressing these challenges by providing solutions that increase efficiency and provide funding opportunities that make it easier for small businesses to grow. In this case, the introduction of export finance can be a game-changer for SMEs:
Scalable financing: Trade finance offers flexible, secure and scalable treasury solutions that can meet the credit demands of small businesses. Factoring provides credit protection, working capital and collection services that simplify the delivery of goods and services to overseas buyers. Financing is based on confirmed invoice value, not credit, providing more flexible and scalable financing options than traditional bank loan programs.
Cash increase: Exporting goods requires sellers to maintain long working capital cycles. In addition, it is common to encounter waiting times of up to 90 days between the arrival of the goods and the receipt of payment. These lead times often limit purchase orders for SMEs. Trade finance solves these short-term cash flow problems by issuing payment in days, instead of months. This allows SMBs to extend their transaction flow instead of waiting for payments to be verified.
Guaranteed payment: Trade finance bridges the gap between importers and exporters. When working with foreign buyers, there is always a risk of financial loss if the customer becomes insolvent. A trade finance intermediary will assume the risk of payment collection backed by non-recourse credit protection. Customers’ credit-based financing limits their maximum credit availability to guarantee full payment of your invoices. As the creditworthiness of customers is checked, the company is protected against possible market failures. They have the maximum level of financial protection, securing transactions and increasing the potential for profitability.
Ease of process: Export financing reduces processing time and provides transparent business processes. At the same time, it saves time and cost of document management and eliminates hassles and redundant documentation.
- How KredX Bridges the Trade Finance Gap and Empowers Businesses
KredX, India’s largest supply chain finance platform, has recently extended its services to post-shipment export finance. Through this new offering, the company aims to enable companies and their business partners to have fast, digital and unsecured access to liquidity against their receivables at competitive market rates. The initial objective of KredX Global Trade is to provide financing solutions to Indian companies for international trade between the main trade corridors: United States, Europe, Middle East and the rest of Asia. So far, the company has disbursed over $100 million in funding requirements.
KredX Global Trade is a unique proposition that will focus on providing comprehensive financing solutions to Indian businesses as well as developing a robust platform that will provide connectivity to global liquidity pools and investors, enabling investors to invest with confidence. These features will offer SMEs, which currently represent India’s largest export contributor, an alternative source of finance based on performance-based lending criteria rather than collateral, at competitive rates.
This offering will provide Indian businesses with the ease and convenience of operations with end-to-end digitized processes to avail working capital, which is unsecured and based on their current business performance and future growth and not financial performance. historical data with a transparent price structure. In addition, this financing will complement existing sources of financing for businesses and provide an additional source of financing that supports the growth of SMEs.
KredX is privileged to be one of four entities to have obtained a license from the International Financial Services Center (IFSC) to implement the ITFS platform in GIFT city. The company’s collaboration with global financiers like Tradewind Finance along with the ITFS platform will effectively enable KredX Global Trade to offer the lowest finance rates to exporters in India. The ecosystem offered by IFSC/ITFS and India’s commitment to grow its exports from USD 330 billion to USD 1 trillion by 2028 will enable KredX Global Trade to empower SMEs, which will propel in turn the growth of the Indian export ecosystem.
- How is the global trade finance market expected to grow in India in the coming years?
The Indian trade finance market is estimated at USD 2.75 billion in 2022 and is projected to reach USD 3.88 billion by 2027, growing at a CAGR of 7.1%. The trade finance market is vast and is only expected to grow further in the coming years owing to the demand for global imports and exports.
Indian trade finance market is increasingly applying technologies such as blockchain, artificial intelligence (AI), machine learning (ML) and internet of things (IoT) which will drive the trade finance market trade in the country. AI and ML use natural language processing (NLP), chatbots, and predictive analytics to solve problems, recognize trends, forecast demands, and provide business recommendations. These technologies also help automate the document negotiation process and ensure that electronic forms are delivered to stakeholders at a given time. Additionally, integrating blockchain with trade finance will increase efficiency and simplify the end-to-end invoice finance transaction. The integration of technology to improve the efficiency of the corporate finance cycle will be one of the key industry developments that will drive the size of the trade finance market.
Development of technologies such as Optical Character Recognition (OCR) to read container numbers, Radio Frequency Identification (RFID) and Quick Response (QR) codes to identify and track shipments, will improve document scanning business, which should drive growth. of the size of the trade finance market in India. Additionally, government funding aimed at improving trade finance for increased exports would have a significant impact on the growth of the market.
- initiatives that the government is undertaking to bring more revolution to this space?
The Indian Ministry of Finance has recently set up the International Trade Finance Services (ITFS) platform, a framework that would help attract trade finance opportunities for Indian exporters and importers from international and domestic sources. The facility aims to enable exporters and importers to benefit from various types of trade finance facilities on competitive terms for their international trade needs. This dedicated electronic platform, ITFS, is created to help them convert their trade receivables into cash and obtain short-term financing. This should streamline the process of securing working capital to trade, thereby reducing the cost of trading. This significant development has the potential to become an engine for Indian exports that will place India in an exclusive club of global financial centers.