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Fintechs: Bridging the Financing Gap

Cash-strapped small and medium businesses can bank upon swift and stress-free services of Fintech firms

By Mrinmoy Bhattacharjee

Fintech, a portmanteau of Financial Technology, has emerged as the best lending buddy for small and medium businesses (SMBs). This new breed of lenders has come to be seen as agile, innovative and precise in dealing with a range of complex financial challenges. Let’s take loans for instance. The formal lending system requires a person to fulfil an elaborate set of procedures and compliance before credit is finally disbursed. This is not before an applicant knocks on the doors of multiple financial institutions, and goes through a series of negotiations while weighing his own requirements with the offerings. Another challenge is the rigid loan underwriting methodology that traditional banking institutions adopt to screen out unworthy applicants. This cumbersome process prevents credit growth, delays disbursements, and often leaves credit seekers faced with lots of problems. Characteristically, Fintech leverages technology for its end-to-end processes, leading to a nimble, evolved and more effective operation.

Fintech firms such as Mumbai’s Rubique and Chennai-based Vayana Network have geared up to make accessing finance fairly simple and swift for SMBs. “With the domestic economy expected to emerge as one of the leading economies in the world worth $5 trillion by 2025, the major thrust is being given to strengthening the micro, small and medium enterprises (MSME) sector,” says Manav Jeet, managing director and CEO at Rubique. Unfortunately, he points out, till now a major constraint in its growth has been non-availability of easy finance as not all MSMEs are favoured by the traditional banks when it comes to lending. They are ignored on the basis of lack of experience, non-existence of collateral and infrastructure, poor financials, and small ticket size.

“Even the risk appetite of each financial institution varies,” Jeet highlights, adding that in the absence of a common platform for assessment, it becomes difficult for customers as well as financial institutions to discover each other. Also, the stringent norms and dependency on traditional methods to assess credit worthiness make it rather difficult for customers to get easy access to finance.

Vayana Network’s key motivation for catering to businesses of all sizes, especially SMEs, is its mission to empower and develop the enterprises from semi-urban and rural India, says the Chennai-based firm’s founder and CEO R N Iyer. “SMEs are the second largest employers in the country and contribute over 38% to India’s GDP; and yet they struggle for access to capital.” He underscores: “We have today enabled SMEs located across India to avail cash flow based financing in an easy manner.”

Iyer explains that SMEs catering to the needs of larger corporates face cash flow issues due to delayed payments from their customers. With small teams, they are forced to divert their limited bandwidth in collections and follow up. Traditional, supply chain finance (SCF) suffers from cumbersome paper work, manual processing and higher costs, forcing SMEs to adopt other expensive means of financing.

Aiming to overcome these challenges, Rubique is making the loan discovery and application process increasingly seamless. Jeet elaborates that the firm’s “entire” focus is on building higher efficiency through maximum technological intervention and product innovation. “Our TAB (Tech Assisted Business) Solution, which has been launched earlier this year especially for SMB financing solution, covers low to high risk credit requirements through five categories with two secured loan products, including LAP and MEL, and three unsecured loans such as micro business loans, unsecured business loans, and commercial vehicle finance.”

The solution incorporates a paperless layer with various technology features such as eKYC, bank statement analysis, credit bureau integration, IRIS scan for Aadhaar authentication, and generation of Credit Assessment Memo (CAM). This is along with deviations enabling the credit underwriter to take a swift decision and reduce the processing time further.

Vayana Network has worked with a large automotive components firm in south India to create a vendor financing programme that addresses the issue of payments to their long tail vendors. The programme was structured through a Commercial Card – with no due diligence on the vendors. The successful implementation resulted in the additional working capital in the supply chain, with zero collateral from the SMEs and 90% drop in vendor queries.

“Agriculture is the most cyclical of sectors,” states Iyer. “It has the highest need for SCF, yet it is the toughest for FIs to finance. We have facilitated an end-to-end SCF solution for a mid-corporate in the agri sector, through a Commercial Card for the corporate’s long tail payables.”

With such a solution, he asserts, Vayana Network is effectively democratising the market, where buyers and suppliers can now pay using free credit float and reduce the receivables respectively. “We enable automated supply chain financing by connecting SMEs and their trading partners with banks and FIs digitally, to facilitate receivable and payable financing, pre-shipment and post-shipment.” The company has nine lenders in its network for the facilitation.

Suppliers, Iyer adds, present their invoices through Vayana Network and buyers provide acceptances – both are digitally signed. The entire workflow is end-to-end electronic. There is no need for any new infrastructure, either at the SME or the corporate end. Buyers and sellers can exchange and verify trade documents electronically without having to add or invest in any complex technology setup or any change in their existing processes. Banks and financial institutions receive digitally signed non-repudiable acceptance of the trade documents, reducing the risk as well as cost and time to process the transaction for financing.

He further adds that the company’s Closed Loop Payables Financing programme, which uses Commercial Cards to provide automated payments to SME suppliers, helps buyers get free float without affecting their normal payment terms on invoices. Here suppliers get early payments without having to provide high discounts; FIs receive non-repudiable payment obligation at the transaction level and pay the supplier; buyers repay financial institutions on the due date, and invoice level reconciliation is inbuilt.

“Rubique’s endeavour is to mine all possibilities and ensure that the customer gets what he is looking for, rather the best deal,” states Jeet. With this mission, he stresses, “We have approached over 70 financial institutions now, and have digitised their credit policies (over 200) and have created a matchmaking algorithm which eases the discovery and connects the customer with the right financial institution based on his eligibility.”

This technology intervention brings predictability to the overall process by bringing the rejection ratio down. The next technology advancement is done by Rubique with some FIs, he says, is the ‘paperless approval’ which provides customers with an instant online approval. “Having worked on varied credit policies of financial institutions’ and bringing them on a common platform to provide a seamless experience to the consumer, as well as increasing efficiency and lowering cost of acquisition for financial institutions, has been Rubique’s core competency,” he adds.

Despite being in a market leading position, technology product innovation has been the firm’s sustained endeavour.  “Deployment of these products at every touch point in the market, right from sourcing to fulfilment, is something which has greatly differentiated us from our competitors,” affirms Jeet.

Both these Fintech firms have tapped cutting-edge IT and innovative business models to forge strategic partnerships with financiers and SMBs alike. Vayana Network has partnered with nine financiers. It has facilitated over Rs 4,000 crore in financing for over 180 corporates and their supply chains across 15 industries, informs Iyer. It has more than 1,000 SME counter parties active on its network, which “truly” serves the financing needs of the SMEs – that is as small as a turnover of one crore, and the majority being in the less than Rs 100 crore turnover bracket.

Iyer informs: “SMEs from a wide range of industries — from manufacturing to e-commerce — are actively accessing finance through the Vayana Network. They span geographies in India from J&K to Tamil Nadu and Assam to Gujarat. We have enabled participants in 150-plus cities across 600-plus PIN codes in India. Nearly 35% of the network has originated from locations beyond tier-II. The network serves multiple industry sectors with close to 90% contribution coming from traditional SMEs engaged in manufacturing and brick & mortar sectors.”

Focusing on a simplified SME experience, he affirms, “We have thoughtfully built our network over the past seven years. On-boarding and financing can be delivered to multiple SMEs within a day’s time.” Citing fully electronic and non-repudiable workflows, he adds, “Vayana Network has empowered banks and financial institutions to fund long tail vendors and dealers on corporate supply chains, thus enabling true financial inclusion for SMEs from a credit perspective.”

On the other hand, Rubique has processed more than 1,00,000 loan applications with disbursals worth over Rs 2,000 crore, of which almost 60% disbursals have been contributed by MSME, informs Jeet. “We believe there is huge potential in the MSME segment, and going forward Rubique will also have the focus to cater to this segment. It would be our endeavour to get as many as financial institutions as possible on board so that we can cover large product portfolios across low risk to high-risk loan requirements, and  every customer would get an apt product for his needs.” Also, he states, the firm would expand its reach in different cities to make finance easy for all those who need it. ')}


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