How artificial intelligence-backed fintechs are solving working capital woes of MSMEs

While traditionally the market has been limited to funding and optimising working capital, the new-wave of technologically advanced ventures are progressing towards effortless collaboration, cost optimisations, efficient gains, and more.

Despite being acclaimed as the backbone of our economy, micro, small, and medium enterprises (MSMEs) in India continue to grapple with working capital woes. Massive bottlenecks arise as these businesses struggle to obtain liquid funds from trade receivables at a time necessary. In addition, MSME lending as a segment is fraught with several challenges, including the high rate of interest, and tedious documentation, amongst others.

However, leveraging the latest advancements in technology, fintech players are disrupting the status quo, facilitating MSMEs’ access to working capital. Through end-to-end digital processes and artificial intelligence (AI) algorithms, fintech players are able to expedite the turnarounds and help MSMEs receive funds ahead of time. Here’s delving deeper into how fintech is resolving the working capital woes faced by the sector.

A new dawn

Owing to the technological disruptions surrounding us, the business scenarios that earlier could only exist within the labyrinths of one’s imagination are now being launched as profitable ventures. Revolutionary tech disruptions like AI and blockchain are finding rapid adoption by fast-growing startups, ushering the world into a new dawn of enhanced efficiencies and operational optimisation.

The fintech sector has been one of the early adopters of this new wave of technology. Today, fintech lenders are able to venture into segments previously deemed high risk by financial institutions and banks. This is yielding positive results in several critical areas, including MSME lending. Other emerging fintech platforms have been successful in bridging the gap between lenders and borrowers, utilising technology in automating policy checks, verifications, eKYC, among other governing protocols.

The industry has also witnessed a huge influx in the supply chain financing segment; the global invoice finance market is worth over $3 trillion and counting. While concepts like invoice discounting can hardly be termed as the ‘new kid on the block’, fintech players are gradually disrupting the status quo by adopting machine learning and blockchain in the field. New-age dynamic discounting platforms are able to assist corporate buyers and suppliers in optimising the supply chain by providing access to working capital for suppliers and cost savings for the corporate buyers.

AI-backed invoice discounting

With machine learning and AI, fintech platforms have developed their algorithms that work round the clock to maximise the gains for corporate buyers and vendors. The technology incorporates various factors to optimise the process; this may include the type of industry, location, and the rate of discount acceptance and rejection in the given industry. Furthermore, previous transaction data is also taken into consideration, including the total number of invoices that have been accepted or rejected.

This information is then coupled with the macro data, such as crude price, currency exchange rates, major commodity prices, liquidity environment and more. Addition of new suppliers, via benchmarking, only optimises the process that thrives on rich industry data. After tirelessly mulling over the big data sets, the multi-layered process reveals dynamic scorecards for each supplier.

The technology then automates the individualistic discounting for each vendor, as governed by their exclusive scorecards. Data from daily transactions is further fed into the system, in order for the algorithm to yield discount offers that maximise the success rate per transaction.

In essence, the richer the history of data, the more accurate and optimised the discount rates. Besides, these fully digitised solutions ensure higher participation from both the corporate buyers and their associated vendors. With a promise of technologically-superior operations, these fintech players are turning over a new leaf in the burgeoning supply chain finance segment.

While traditionally the market has been limited to funding and optimising working capital, the new-wave of technologically advanced ventures are progressing towards effortless collaboration, cost optimisations, efficient gains and more. In times to come, more B2B ventures will join hands with technology-backed dynamic discounting platforms, in order to reap the full potential of superior tech and collaborative processes.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)


Updates from around the world