How This Discounting Platform is Aiming to Solve the Credit Woes of MSMEs
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Less than 10 per cent of the MSMEs have access to formal routes of financing and this explains the sector’s credit-related woes. Even for this 10 per cent, raising funds is no less than a nightmare as they are either likely to fall short of collateral or their financial statements are not strong enough to raise the proposed amount. This is where factoring or bill discounting comes to the rescue.
Factoring as a business has been there for a quite some time, however, there are very few companies that bring together the financer, the buyer (a large corporate) and the supplier (SMEs) on a single platform.
One such company is Axis Bank-led A.Treds’ Invoicemart, a digital platform that uses the price discovery management through a transparent auction process.
In conversation with Entrepreneur India, Kalyan Basu, CEO and Managing Director, A.Treds shares how technology is helping the company bridge the MSMEs credit issues.
Buyers Bare it All
In most of the situations, MSMEs have to prove their creditworthiness to avail a bank loan. However, on platforms like A.Treds, the buyer's creditworthiness is all that matters for the financer.
“A.Treds ensures the sellers don’t have to prove their credibility on the platform by providing either collaterals or credentials. They can get financed by leveraging the buyer's risk profile. This completely changes the risk perception of the financer,” shares Basu.
As of today, Invoicemart has 10 active financers, which include Allahabad Bank, Bank of Baroda, Standard Chartered Bank, Development Bank of Singapore, IDFC, Federal Bank, SBI Global Factors, around 28 buyers such as Future Group, Apollo Hospital and around 300 sellers on the platform.
In the last one year of its operation, A.treds has discounted more than 10,000 invoices, with an average value of around INR 2.5 lakhs.
On asking him, why Trade Receivables Discounting System (TrEds) is a better platform to meet your capital needs than alternate lending solutions, he said, “Our accounts are managed by National Automated Clearing House (NACH) which is backed by National Payments Corporation of India. With most of the fintechs, since there is no watchdog to regulate it, these companies are less accountable. So, there is huge risk involved.”
NACH is a centralized system launched with an aim to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standards & practices and removes local barriers/inhibitors.
For every company that is floated in the ecosystem, the promoter also brings in a lot of value. In case of A.Treds, its promoter is Axis Bank which has an MSME franchisee of more INR 55,000 crore with a customer base of about 40,000 companies. Therefore, Basu feels A.Treds deeply understands the MSMEs business as an entity.
Additionally, Basu points out, “We are engaged with all the large corporate buyers, both PSUs and private companies. So, we understand their profiles and needs. We are at the syndication side, so we understand the financers and their needs. Therefore, we are in a unique position to understand the requirement of each and every player who is onboard on the platform.”
What Axis Bank lacked was expertise in running digital platforms like Invoicemart. This led the bank to partner with Mjunction, a 15-year old tech company which is a joint venture between SAIL and Tata Steel.
Presently, apart from on boarding the stakeholder – buyers, sellers and financers, the entire platform is automated. The company is also planning to launch its very own mobile app.
Let’s Talk Tech
In 2016, when Reserve Bank of India released licenses to Axis Bank along with Small Industries Development Bank of India and Mynd Solutions to host TreDs platform, it did not say that a seller or buyer cannot be onboard with more than one player.
So, at some point in time, these players will be registered with all the TrEds platform. How does one check that the invoices are not being discounted at more the one platform?
Basu says, “To bring that, we (Axis Bank, SIDBI, Mynd) are exploring blockchain technology to have a real-time check so that once the invoice is factored into a platform, it cannot get discounted on any other.”
The senior executive refrained from disclosing details about the upcoming blockchain solution; however, he hinted that announcements related to the development will be made public by the end of this financial year.