India’s Trade Finance Market is expected to reach USD 3.88 Bn by 2027: Manish Kumar, CEO & Founder at KredX
CXOToday has engaged in an exclusive interview with Mr. Manish Kumar, CEO & Founder at KredX
- Issues that SMEs face currently with regards to export financing and how fintechs are mitigating that?
SMEs account for nearly 50% of India’s total export volumes yet they remain one of the most underserved segments when it comes to working capital provisions. Factors like long processing times, demands for collateral, lengthy paperwork, and other such factors have made working capital highly inaccessible to all businesses.
The access to trade finance is majorly restricted in case of MSMEs. The global trade finance gap was estimated at US$ 1.6 trillion in 2016 and for Asian developing economies alone, the estimated shortage is US$ 692 billion. Limited access to finance, lack of a database, low research and development (R&D) expenditures, and a low level of financial inclusion have led to stunted growth of SMEs. It is critical to address these challenges to unlock the trading potential of the small businesses.
New age fintech companies like KredX are empowering small businesses with quick, digital and collateral-free access to liquidity against their receivables at competitive market rates. This offering will provide Indian corporates the ease and convenience of end-to-end digitized processes for availing working capital, which is collateral free and based on their current business performance and future growth and not on historical financial performance, all with a transparent pricing structure. Furthermore, such financing will complement companies’ existing sources of funding and be an additional source of funding that supports growth for the SME companies. Moreover, it will provide investors an opportunity to invest in/gain exposure to a larger band of trade receivables along with access to credible and real time insights into asset quality, underlying transaction documents and an extensive range of investment structures and risk profiles.
- While banks continue to play a critical role in funding trade for MSMEs, they encounter technological, operational process, and other hurdles to extending credit. How are fintech companies serving SMEs better?
A crucial factor affecting MSMEs’ ability to acquire finance from traditional banks is the high cost of service associated with MSME financing. Moreover, these banks lag behind in terms of automation and digitalization that delays the time to disbursements. Without automation, manual handling costs remain too high to serve a huge segment of the MSME market. Moreover, given the lengthy and cumbersome processes, banks usually take weeks and sometimes months to release credit to small businesses that affect 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 rate of adoption amongst SMEs. This has empowered MSMEs by giving them the choice to do business and manage financial accounts as per their needs. Moreover, in comparison to banks, personalization of services by fintechs is another factor that has empowered the SMEs. Moreover, the digital innovation of fintech companies is also building an omni-channel experience for SMEs
- How will export financing be a gamechanger for SMEs?
Availing affordable and easy access to finance is pivotal to SMEs while exporting. Availing finance from traditional banks can be complex and tedious for MSMEs. New-age fintechs are increasingly addressing these challenges by providing solutions that increase efficiency and provide financing opportunities that facilitate business growth for small businesses. In this case, the introduction of export financing can act as a game changer for SMEs:
Scalable financing: Trade financing offers flexible, secure, and scalable cash flow solutions that can meet the credit demands for small businesses Factoring provides credit protection, working capital, and collection services that simplify the delivery of goods and services to foreign buyers. Funding is based on the value of the confirmed invoices, not the credit, providing more flexible and scalable financing options than traditional bank lending programs.
Increased cash flow: Exporting merchandise requires sellers to maintain long working capital cycles. Additionally, it’s common to experience waiting times up to 90 days between the arrival of the goods and the receipt of payment. These delays often limit the purchase orders for the SMEs. Trade financing solves these short-term cash flow challenges by issuing the payment within days, instead of months. This allows SMEs to expand their transaction flow instead of waiting for payments to verify.
Guaranteed Payment: Trade financing bridges the gap between importers and exporters. When working with foreign buyers, there’s always a risk of a financial loss if the customer becomes insolvent. A trade financing intermediary will assume the risks of collecting payment backed by non-recourse credit protection. Financing based on the clients’ credit, limits their maximum credit availability to ensure your invoices are paid in full. Since the creditworthiness of the clients undergoes monitoring, the company is protected from potential market failures. They have the maximum level of financial protection, securing the transactions and increasing the potential for profitability.
Ease Of Process: Export financing reduces the processing time and provides transparent trade processes. At the same time, it saves time and costs involved in documentation handling and eliminates hassle and redundant documentation.
- How KredX is bridging the trade finance gap and empowering businesses?
KredX, India’s largest supply chain finance platform, recently expanded its services into post-shipment export financing. Through this new offering the company aims to empower businesses and their trade partners to have quick, digital and collateral-free access to liquidity against their receivables at competitive market rates. KredX Global Trade’s initial focus is on providing financing solutions to Indian corporates for international trade between significant and key trade corridors: United States, Europe, Middle East and the rest of Asia. So far, the company has disbursed $100 million plus in funding requirements.
KredX Global Trade is a unique proposition that will focus on providing comprehensive financing solutions to Indian corporates along with developing a robust platform that will offer connectivity to the global liquidity pools and investors, allowing investors to invest with confidence. These features will offer SME corporates, which currently account for the highest contribution to India’s exports, an alternative source of financing driven by performance based lending criteria instead of collateral based, at competitive rates.
This offering will provide Indian corporates the ease and convenience of operations with end-to-end digitized processes for availing working capital, which is unsecured and based on their current business performance and future growth and not on historical financial performance with a transparent pricing structure. Furthermore, such financing will complement companies’ existing sources of funding and be an additional source of funding that supports growth for the SME companies.
KredX is privileged to be one amongst the four entities to be granted a license by International Financial Services Center (IFSC) to set up the ITFS platform at GIFT city. The company’s collaboration with global financiers like Tradewind Finance along with ITFS platform will effectively allow KredX Global Trade to offer the lowest financing 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 allow KredX Global Trade to empower SMEs which will in turn propel the growth of India’s exports ecosystem.
- How the global trade finance market is projected to grow in India in the coming years?
India’s Trade Finance Market is estimated to be USD 2.75 Bn in 2022 and is expected to reach USD 3.88 Bn by 2027, growing at a CAGR of 7.1%. The market for trade financing is vast and is only set to grow further in the coming years owing to the demand for global imports and exports.
The Indian trade finance market is increasingly applying technologies such as blockchain, artificial intelligence (AI), machine learning (ML), and the Internet of Things ( IoT) that will boost the trade finance market in the country. AI and ML use natural language processing ( NLP), chatbots, and predictive analytics to address problems, recognize trends, foresee demands, and provide business recommendations. These technologies also help automate the process of trading documents and ensure that electronic forms are delivered to stakeholders at the given time. Moreover, the integration of blockchain with trade finance will increase efficiency and simplify the invoice finance transaction from end to end. The integration of technology to improve the business financing cycle’s efficiency will be one of the main industry developments that will boost the trade finance market size.
Developing 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 enhance the digitization of trading documents, which is expected to boost the growth of trading finance market size in India Moreover, government funding to improve trade finance for increased exports would significantly impact the growth of the market.
- initiatives that the government is undertaking to bring more revolution in this space?
The Indian finance ministry recently set up the ‘International Trade Finance Services’ (ITFS) platform, a framework that would help draw in trade finance opportunities for India’s exporters and importers from international and domestic sources. The mechanism is aimed at enabling exporters and importers to avail various types of trade finance facilities at competitive terms for their international trade needs. This dedicated electronic platform, ITFS, is created to help them in converting their trade receivables into liquid funds and to obtain short-term funding. This is expected to streamline the process of securing working capital to conduct trade, thereby reducing the cost of trade. This significant development has the potential to become a driver for Indian exports that will place India in an exclusive club of global financial hubs.
