The demands of job markets are changing rapidly, driven by the technology revolution faced by the global fintech sector. Tech teams, which were earlier very small components of traditional finance companies, have now become more relevant. There is a demand for new-age tech specialists to fill jobs in fintech companies and a great need to upskill present resources to meet this requirement says Pushkar Mukewar, CO-CEO, Drip Capital, in conversation with Rashi Aditi Ghosh of Elets News Network (ENN).
- How can trade factors bridge the gap between the bank and NBFCs credit?
Difficulties with credit availability and cash flow have been rampant concerns with MSME exporters for a long time now. The major reason behind this is the tiresome long process of raising finance from banks. Traditionally, banks and NBFCs prefer servicing large corporates over SMEs as the cost of servicing the latter is higher viz-a-viz the availed finance. If the bank or NBFC agrees to lend to an SME, there is a long trail of paperwork involved and the business is expected to offer collateral, along with audited financials of the company. Additionally, this entire process could take between 20-30 working days to complete, which small businesses may not be able to wait for.
These problems come together to severely affect the working capital availability for many small exporters, leading to defaults on payments to their suppliers and other issues. Henceforth, this becomes the major factor restricting the growth of exporters in global market trade. According to a report by Asian Development Bank, the global trade finance gap is almost $1.5 trillion, of which about $600 billion is in emerging Asian countries. In India alone, there is an unmet demand for $80 billion worth of trade finance among SMEs.
With the advent of technology-driven new-age financial business, this problem could be solved with alternative financing options such as trade factoring. Trade factoring is crucial for helping resolve longstanding working capital issues faced by small businesses, especially SME exporters. The global factoring market is projected to reach $9,275.15 billion by 2025, as per Adroit Market Research. Drip Capital, for instance, is one such trade factoring company that uses an automated analytical tool to raise working capital within 48-72 hours with minimal paperwork.
- How can fintech help in reinstating cash flow in the slowdown economic situation?
Fintech steps in to make the cumbersome process of raising working capital easier by using new-age tech-driven risk assessment solutions. When the traders have enough working capital secured, their manufacturing becomes economical, giving them an edge in the global trade market and ensuring the continuation of business. Fintech companies can use alternate data to offer credit in a completely paperless/digital solution without the need of collateral, creating a seamless finance offering. Credit availability and cash flow have been rampant concerns with MSME exporters for a long time now, and the Finance Minister appears to have finally taken note. FM Nirmala Sitharaman’s announcements in the Union Budget 2020 which allowed NBFCs to offer invoice financing solutions to MSMEs, as well as the proposal to set up an app-based invoice financing product, will be crucial for helping the longstanding working capital issues faced by small businesses, especially SME exporters.
- What are your views on the employment scenario pertaining to the sector?
The demands of job markets are changing rapidly, driven by the technology revolution faced by the global fintech sector. Tech teams, which were earlier very small components of traditional finance companies, have now become more relevant. Fintech companies today are driven by techprenuers. There is a demand for new-age tech specialists to fill jobs in fintech companies and a great need to upskill present resources to meet this requirement. The government has also committed to digital upscaling of the workforce by introducing 150 higher educational institutions with embedded degree/diploma courses by March 2021. The government also aims to run a program whereby urban local bodies across the country would provide internship opportunities to fresh engineers for one year.
- What role will trade factors play in financing SME traders, if the government takes measures to control import
In the Union Budget 2020, the Finance Minister Nirmala Sitharaman announced a safeguard duty as a trade remedy against a surge in imports of certain commodities. However, protectionist moves like these could backfire and have a ripple effect on the SME ecosystem wherein countries, in the future, could refuse to import certain Indian items – leading to a tit-for-tat trade-war-esque situation (a la US-China).
On the other hand, most SME exporters’ major concerns are related to cash flow and access to markets. With factoring, SME exporters can manage their receivables better and use their finances not just to pay their vendors or suppliers, but to upgrade their existing machinery as well as research and develop higher quality products which in turn will help them compete better in the global value chain.