How Vayana Network is financially enabling the MSMEs of India through SCF and access to trade finance

CXOToday has engaged in an exclusive interview with Mr. Kalyan Basu, MD & CEO Vayana (IFSC) Pvt. Ltd. which owns and operates Vayana TradeXchange, the ITFS platform regulated by IFSCA.

Q) How is Vayana bringing formal finance to the last mile leading to the formalization of small businesses? What are the products and services offered by Vayana Network?

At Vayana, we believe, that every business, small or large, should have timely access to affordable and formal sources of working capital finance. Vayana creates supply chain finance programs for corporates and their partners (vendors and dealers), all the way up to the last mile which could be a kirana store or a sole proprietor-led small manufacturing unit.

Vayana, with the help of technology and the deep domain experience of its team, has developed products, which make it unit positive for lenders to finance MSMEs, eventually reducing the cost of credit. There are two major reasons which lead to traditional lenders staying away from lending to MSMEs – one, the inability, of small businesses to prove their creditworthiness and second, the cost of servicing them.

 Vayana’s cloud-based solutions help banks reduce their costs, acquire customers digitally, authenticate transactions digitally and monitor repayments.

 Every business has its own format for invoices. Vayana has developed systems which convert invoices irrespective of their format, into data which is readable for the bank’s systems and a corporate’s ERP. This core solution is applied to all trade finance products, regardless of the size and type of the business entity.

 Apart from the trade finance products suite, Vayana simplifies monitoring and compliance by offering the following solutions to MSMEs:

Utilities to file GST returns, generate e-Invoices and e-Way bills, helping them become credit ready.

Cashflow management solutions through HyloBiz help MSMEs automate receivables/payables and reconciliations.

GBS (Good Business Score in collaboration with CRIF), gives MSMEs a detailed analysis of their business health based on GST returns.

Q) How access to capital has long been a challenge which the MSME sector is still tackling?

Access to capital has long been a challenge for the MSME (micro, small, and medium enterprise) sector for various reasons:

• Lack of collateral: Often, MSMEs lack the collateral required to secure traditional loans. Banks and other various other financial institutions require property or surety as collaterals to secure loans, but unfortunately many MSMEs are not in a position to provide the same.
• High-risk perception: MSMEs are often viewed as high-risk borrowers due to their limited operating history and small size. This means that lenders may be hesitant to offer them the required loans, even if they have a good track record and a promising business plan.
• Difficulty in meeting loan requirements: Many MSMEs may not be able to meet the stringent requirements that lenders place on borrowers, which includes minimum revenue, assets, turnover or credit scores.
• Limited financial literacy: Many MSME owners may unfortunately lack the financial literacy required to understand the complicated loan application and the approval process, which in turn makes it difficult for them to secure the required capital.

 All the above mentioned challenges combined make it difficult for the MSME sector to obtain the required capital that they need to run and grow their businesses. This lack of access to capital can restrict their ability to hire employees, innovate and invest in technology and equipment, thus limiting their potential for growth and profitability.

Q) How supply chain financing can be an effective solution to address this long pending problem?

 Supply chain financing can be an effective solution to address the MSME sector’s access to capital challenge in the following ways:

• Supporting Cash Flow Management: With SCF, MSMEs can receive payment for their goods or services promptly, which helps to maintain the required cash flow for their operations. Businesses can also utilize financing options offered at a lower cost compared to traditional channels, such as bank loans, which will avoid adding the interest burdens on the companies.
• Reducing Payment Delays: Payment delays by large buyers can be a significant challenge for MSMEs, but they can be reduced or minimized through SCF. Timely payment to MSMEs through SCF programs, helps in mitigating risk and strengthening the resilience of the small businesses.
• Increasing Access to Finance: Supply chain financing allows MSMEs to access financing that they may otherwise have difficulty in getting, due to their size, lack of collateral, and uncertain challenges in meeting the conventional credit requirements.
• Enhancing Relationships with Corporate Buyers: An effective supply chain finance program can strengthen the relationship between the MSMEs and their buyers. MSMEs and their corporate buyers can work together more efficiently and cost-effectively by introducing the financing element into their business relationship. This further strengthens ties and builds a more sustainable and long-lasting relationship that benefits both the parties.

Overall, supply chain financing can be an effective solution to address the MSME sector’s access to capital challenge by providing consistent working capital and reduced risk, which ultimately supports the growth of MSMEs.

Q) What is the importance of enabling ease of access to export/import finance for MSMEs?

MSMEs contribute almost 50% to Indian exports. Many of them have steady, stable, business relationships which they have been servicing well over the years. And yet, growth has always been a problem for MSMEs, who are often unable to build on and expand their existing business.

With the right access to finance, the MSME sector will continue to grow and thrive, creating more jobs, and will further contribute to economic growth, both locally and globally. MSMEs are to play crucial role if India is to achieve the USD 5 trillion economy and exports are to contribute USD 1 trillion to it. 

Enabling ease of access to export/import finance is critical for the growth and success of MSMEs in the following ways:

• Facilitates Cross-Border Trade: MSMEs often lack the financial resources to engage in cross-border trade on their own. Access to finance makes it easier for them to engage in international trade, expand their customer base, and further increase the revenue.
• Increases Competitiveness: By leveraging the required working capital, MSMEs can compete with larger businesses that have access to more financial resources. With the access to timely and affordable working capital, MSMEs can invest in more inventory, improve their production processes and further develop their business, which will in turn make them more competitive in the market.
• Builds Financial Resilience: Trade credit Insurance backed factoring can help MSMEs to mitigate losses from non-payment or delay in payment by buyers. As a result, MSMEs can continue to focus business growth over the long term.

Q) How Vayana is enabling access to trade finance through the VTX platform (Vayana Trade Xchange)

Vayana TradeXchange (VTX) is an end-to-end digital platform facilitating easy and affordable cross-border trade finance globally. It is registered and regulated by IFSCA, (International Financial Services Centres Authority) Gift City, Gandhinagar, India, the unified regulator set up under the IFSCA Act 2019 by the Govt of India.

 Vayana (IFSC) Pvt Ltd, a 100% subsidiary of Vay Network Services Pvt. Ltd., owns and operates the VTX platform under the broad framework put in place by IFSCA for setting up and operating International Trade Financing Services (ITFS) Platforms. VTX is a paradigm shift as it enables Sellers (Exporters) and Buyers (Importers) across the globe to avail various types of trade finance products which helps them manage their trade receivables and payables resulting in better management of cashflows.

 Through this platform, exporters and importers gain timely access to trade finance in the currency of the invoice, seamlessly across geographies, thus opening avenues to new business opportunities. The rates are discovered through a live and transparent bidding mechanism, which leads to an efficient price discovery.