MSMEs traders rapidly realise the importance of digitisation and how they can leverage modern technologies across every node of the supply chain to become efficient and sustainable. To know more about the significant challenges of MSMEs, Rashi Aditi Ghosh of Elets News Network (ENN) interacted with Anil Gopinath, Chief Technology Officer, Drip Capital.
Tell us about Drip Capital. How is it using AI-based risk assessment to offer working capital to MSME traders across India?
Drip Capital is a trade tech company offering working capital solutions to cross-border traders worldwide. In India, the company provides collateral-free post shipment credit to exporters. Since its inception in 2016, it has financed trade worth over $3.5Bn and, to date, works with more than 6000 buyers and sellers worldwide, spanning 100+ countries. Drip has developed a proprietary automated risk management model to underwrite and evaluate risks in cross-border trade transactions.
The company primarily deals with three types of risks – Commercial Dispute, Financial Risk, and Fraud. Our automated risk management system considers direct and indirect data sources and allows us to assess 1000s of signals for each transaction in a short period. After carefully validating the data, the system predicts risk and develops appropriate parameters and financing terms while underwriting the transaction.
The data-driven policy assessment and machine learning infrastructure helps improve our risk performance with each iteration and enables us to provide working capital to MSMEs with a quick turnaround time.
What are the major challenges faced by Indian MSMEs, especially from Tier-2 and Tier-3 markets? How can technology help resolve that?
MSMEs form the backbone of India’s economy, contributing almost 30 per cent to India’s GDP. According to the Ministry of Micro, Small & Medium Enterprises, as of March 2022, India has more than 7.9 crore MSMEs employing over 11 crore people and is facing the following significant challenges:-
- Limited access to capital: Banks usually hesitate to fund MSMEs because of their small size, less turnover, low credit rating, and lack of proper financial documentation. Even if banks decide to fund, their lending process is time-consuming, bureaucratic, and involves lengthy paperwork.
MSMEs need steady and quick access to working capital to scale rapidly. However, most don’t have assets to mortgage and often deal with varying demands compounded by market dynamics and trade fluctuations. This is where fintech players like Drip come into the picture. With our vast investments in advanced risk models and tech expertise, Drip acts as a strategic financial partner to these MSMEs, allowing them to manage cash flows and accelerate sustainable growth effectively.
- Unstructured business operations: MSMEs often lack the financial management and skills required to organise business operations, resulting in poor decisions and depletion of funds at an early stage. Investing in a fully digital system integrated with advanced technologies will allow MSMEs to innovate themselves and acclimatise to the modern world.
- Lack of financial inclusion: MSMEs based out of Tier I or Tier II cities usually lack financial knowledge about the different and latest tools and means available to conduct day-to-day business. From procuring raw materials, raising capital, designing a digital supply chain to adopting digital payments, and finding customers, suppliers, and competitors online, technology can aid MSMEs in understanding different platforms to ensure operations run smoothly.
How significant is the risk assessment module for MSMEs today?
Our goal is to identify MSMEs in dire need of funding while weeding out fraud. Considering the current global economic dynamics, including market volatility, soaring commodity prices, etc., it is more important than ever for MSMEs to acquire rapid and adequate funding. On this note, our risk assessment model is retrained periodically.
We use a combination of a risk policy engine and ML model-based mechanisms, helping us stay updated and maintain decision-making accuracy. Since ML models are trained using data, the more data used for training, the more accurate the predictions would be, making it significant for MSMEs.
How is Drip helping narrow the digital gap between MSME traders?
MSMEs traders rapidly realise the importance of digitisation and how they can leverage modern technologies across every node of the supply chain to become efficient and sustainable. Fintech players like Drip are further pushing MSME traders in this direction.
Especially in the cross-border trade ecosystem, there is a need for multiple stakeholders to work together to get the ball rolling. Hence, Drip is building an intuitive platform to connect with crucial participants across the value chain and thereby help MSMEs build a global virtual robust network. In this way, companies are opening their APIs to collaborate and provide seamless services to MSMEs, helping narrow the digital gap within the industry.
What are Drip’s plans for its core technology expansion in the near future?
Besides launching the trade facilitation platform, we have plans to develop useful non-financial tools, such as creating a container tracking facility for MSMEs to plan and grow their business.
In addition, we are working on strengthening our data infrastructure for risk to enable more customers to access credit and provide better credit facilities while maintaining losses. Apart from this, our focus has always been on innovating our product, building strategic partnerships with crucial stakeholders like banks, and ensuring Drip becomes a key enabler in the cross-border trade ecosystem.