CXOtoday did an exclusive interview with Mr. Manish Kumar, CEO and Founder of KredX
- Issues SMEs are currently facing in terms of export finance and how fintechs are easing them?
SMEs account for almost 50% of India’s total export volume but remain one of the most underserved segments when it comes to working capital provision. Factors such as long processing times, collateral requirements, lengthy paperwork and other such factors have made working capital difficult to access for all businesses.
Access to trade finance is severely restricted for MSMEs. The global trade finance gap was estimated at US$1.6 trillion in 2016 and for Asian developing countries alone the estimated shortfall is US$692 billion. Limited access to finance, lack of databases, low research and development (R&D) spending and low levels of financial inclusion have resulted in slower SME growth. Addressing these challenges is critical to unlocking the commerce potential of small businesses.
New-age fintech companies like KredX enable small businesses fast, digital and collateral-free access to liquidity for their receivables at competitive market prices. This offering offers Indian companies the ease and convenience of end-to-end digitized processes to raise working capital that is collateral-free and based on their current business performance and future growth rather than historical financial performance, all with a transparent pricing structure. In addition, such financing will complement existing sources of financing for companies and will be an additional source of financing supporting the growth of SME companies. It also offers investors the opportunity to invest in and gain exposure to a wider range of trade receivables, along with access to real-time, credible insights into asset quality, underlying transaction documents and a wide range of investment structures and risk profiles.
- While banks continue to play a critical role in financing trade for MSMEs, they encounter technological, operational processes and other hurdles in providing credit. How can fintech companies better serve SMEs?
A key factor affecting MSMEs’ ability to obtain financing from traditional banks is the high service costs associated with MSME financing. Additionally, these banks are lagging behind in terms of automation and digitization, delaying the time to payout. Without automation, manual handling costs remain too high to serve a huge segment of the MSME market. In addition, given the lengthy and cumbersome processes involved, it takes banks weeks and sometimes months to release loans to small businesses, hampering the growth of those businesses.
Fintechs have redefined banking through innovative breakthrough services and products. The flexibility of fintech solutions is one of the main reasons for the high adoption rate among SMEs. This has empowered MSMEs by giving them the choice to conduct business and manage financial accounts according to their needs. Furthermore, personalization of services by fintechs compared to banks is another factor that has strengthened SMEs. In addition, the digital innovation of fintech companies also creates an omni-channel experience for SMEs
- How is export financing becoming a game changer for SMEs?
Affordable and easy access to finance is crucial for SMEs when exporting. Obtaining financing from traditional banks can be complex and burdensome for MSMEs. New-age fintechs are increasingly addressing these challenges by offering solutions that increase efficiencies and provide financing opportunities that facilitate business growth for small businesses. In this case, the introduction of export financing for SMEs can be groundbreaking:
Scalable Finance: Trade finance offers flexible, secure, and scalable cash flow solutions that can meet the borrowing needs of small businesses. Factoring provides credit protection, working capital, and collections services that simplify the delivery of goods and services to foreign buyers. Funding is based on the value of approved invoices, not credit, providing more flexible and scalable funding options than traditional bank loan programs.
Increased Cash Flow: Exporting goods requires long working capital cycles from sellers. In addition, waiting times of up to 90 days between receipt of goods and receipt of payment are common. These delays often limit orders for SMEs. Trade finance solves these short-term cash flow challenges by making payment in days instead of months. This allows SMBs to expand 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 client goes bankrupt. A trade finance intermediary assumes the risks of collecting payments backed by non-recourse credit protection. Financing based on customer credit limits their maximum credit availability to ensure your bills are paid in full. Because customers’ creditworthiness is monitored, the company is protected from possible market failures. You have the maximum financial protection, secure the transactions and increase the profitability potential.
Simple processing: Export financing shortens the processing time and ensures transparent trading processes. At the same time, it saves time and money when processing documentation and eliminates hassles and redundant documentation.
- How is KredX bridging the trade finance gap and empowering businesses?
KredX, India’s largest supply chain finance platform, has recently expanded its services into post-shipment export finance. With this new offering, the company wants to give companies and their trading partners fast, digital and collateral-free access to liquidity for their receivables at competitive market prices. KredX Global Trade’s initial focus is to provide financing solutions to Indian companies for international trade between major and major trade corridors: United States, Europe, Middle East and Rest of Asia. To date, the company has disbursed more than $100 million in funding needs.
KredX Global Trade is a unique offering focused on providing comprehensive financing solutions to Indian companies as well as developing a robust platform that offers connections to the global liquidity pools and investors, enabling investors to invest with confidence. These features offer SME companies, which are currently the largest contributor to India’s exports, an alternative source of finance based on performance-based credit criteria rather than collateral, at competitive rates.
This offering will provide Indian companies with the ease and convenience of operating with end-to-end digitized processes for raising working capital that is unsecured and based on their current business performance and future growth rather than historical financial performance with a transparent pricing structure. In addition, such financing will complement existing sources of financing for companies and will be an additional source of financing supporting the growth of SME companies.
KredX is privileged to be one of the four companies licensed by the International Financial Services Center (IFSC) to build the ITFS platform in GIFT City. The company’s collaboration with global financiers such as Tradewind Finance along with the ITFS platform will effectively enable KredX Global Trade to offer exporters in India the lowest financing rates. The ecosystem offered by IFSC/ITFS and India’s commitment to grow its exports from US$330 billion to US$1 trillion by 2028 will allow KredX Global Trade to empower SMEs, which in turn will fuel the growth of India’s export ecosystem.
- How is the global trade finance market in India expected to grow in the coming years?
Indian trade finance market is valued 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 huge and will continue to grow in the coming years due to the demand for global imports and exports.
India’s trade finance market is increasingly applying technologies like Blockchain, Artificial Intelligence (AI), Machine Learning (ML) and Internet of Things (IoT) which will boost the trade finance market in the country. AI and ML use natural language processing (NLP), chatbots, and predictive analytics to address problems, spot trends, anticipate needs, and make business recommendations. These technologies also help to automate the process of commercial documents and ensure that the electronic forms are delivered to the stakeholders at the right time. Additionally, the integration of blockchain with trade finance will increase efficiency and simplify the invoice finance transaction from start to finish. The integration of technology to improve the efficiency of the corporate finance cycle will be one of the key industry developments that will enlarge the trade finance market.
The development of technologies such as Optical Character Recognition (OCR) to read container numbers, Radio Frequency Identification (RFID) and QR (Quick Response) codes to identify and track shipments will drive the digitization of commercial documents, which is expected to fuel the growth of the Size of Trade Finance Market in India In addition, government funding to enhance trade finance for increased exports would significantly impact the growth of the market.
- Initiatives that the government is taking to bring more revolution in this area?
India’s Ministry of Finance recently launched the International Trade Finance Services (ITFS) platform, a framework that would help open up trade finance opportunities for India’s exporters and importers from both international and domestic sources. The mechanism aims to enable exporters and importers to avail different types of trade finance facilities on competitive terms for their international trade needs. This dedicated electronic platform, ITFS, was created to help them convert their accounts receivable into cash and obtain short-term financing. This is expected to streamline the process of securing working capital to conduct trading, thereby reducing trading costs. 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.
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