This fintech platform sees coronavirus crisis as an opportunity to build resilient supply chains for MSMEs
Akshat Birla always wanted to get into fintech, whereas Aljo Joseph wanted to be an entrepreneur. Akshat started his career as a supply chain consultant and then moved to investment banking with Credit Suisse for some time. He was also involved in launching Samsung Pay and driving its operations in the global markets.
When Akshat worked with Samsung Pay, Aljo was running his own neo-banking startup Credsaver. Aljo worked with KPMG, Ernst & Young and then an impact investing firm Pioneering Ventures.
Both were bitten by the entrepreneurial bug. They had earlier met while working in a co-working space. They would often consult each other and had developed a camaraderie. Akshat launched Finovate Capital in November 2018 and Aljo joined soon after.
Akshat shares, “I came back to India and was by then very sure about venturing into the business lending space which has massive opportunities, as well as gaps. Supply chain financing caught my eye because of the under penetration in the space.”
MSMEs in India suffer from working capital lockdown in the long gestation period before they get their receivables from their buyers. This often leads to a lot of mismanagement of money, resources, borrowing, and all this ends up in a vicious cycle. This is where supply chain financiers like Mumbai-based Finovate Capital step in to mitigate the negative effects of the lockdown on MSMEs as a result of delayed payments.
“The whole process of meeting your working capital requirement is very painful. And that was the question we were asking right at the beginning: why should it be so difficult when the asset or the cash flow is right there for you?” explains Akshat.
Finovate Capital has tied up with more than 15 lenders including large banks, non-banking financial companies (NBFCs), small finance banks and new-age lenders. It helps in providing supply chain financing loans to MSMEs.
The foremost challenge was to accumulate a sizable quantum of capital in order to put together a team consisting of industry experts with sound knowledge and experience, as well as to develop the platform. The predicament was solved when they raised an angel round of funding for an undisclosed amount from a couple of individual investors in June last year.
Finovate Capital is today a team of 18 members with senior individuals of the industry from HSBC, Standard Chartered, and Thomson Reuters. It has closed a deal pipeline with existing clients to the tune of Rs 15,000 crore so far.
Setting yourself apart
Fintech is an overused word nowadays. There is immense scope in the space and the number of players is also rising in the fintech market. According to NASSCOM, the Indian fintech market is forecast to touch $2.4 billion by 2020 from $1.2 billion.
Amid such a demand, how does Finovate Capital differentiates and sees itself making a significant difference in the ecosystem?
“There are so many fintech firms out there and they have just captured the space which the banks have not been able to. They have mostly automated the processes,” says Aljo. Akshat adds that people at the bottom of the pyramid have been left out and not catered to at all.
The Finovate Capital platform creates early warning signals and creates comfort for lenders. It makes MSMEs more “lendable” and provides them “seamless access to finance” at the same time. Aljo adds, “We are using a technology platform that monitors money usage by the borrowers to ensure its usage is going in the right hands. Getting into the details of how these companies operate and building early warning signals helps in making the structure of lending and borrowing much more secure.”
All the inbuilt technology is also vital in ensuring that defaults and frauds are avoided and the lenders trust the platform, as well as the borrowers. For instance, technology related to repayments helps in verifying borrowers.
Finovate Capital is also in the process of developing and building deeper technologies with the help of artificial intelligence, machine learning, and blockchain technologies to ensure a complete end to defaults.
Making supply chains more resilient
The coronavirus pandemic has hit the business ecosystem hard. The MSMEs are among the worst-hit, to the extent that the supply chains throughout the globe have been disrupted.
Commenting on the impact of the coronavirus crisis on MSMEs which are the backbone of the economy, Aljo says, “The moratorium on equated monthly instalments (EMIs) of loans suggested by the Reserve Bank of India (RBI) is a fairly good start. But supporting the MSMEs at this stage is critical to minimise the impact on the supply chain and employment.”
Both Aljo and Akshat are of the view that the government will have to come up with a creative plan on how it can provide more working capital to MSMEs.
It is also important to look at trends that are going to make the supply chain management system more resilient and efficient.
Akshat says that there’s a lot of focus on localisation of supply chains and digitisation. Digitisation of processes and data has made everything available with a click of a button, he says.
Besides, Akshat and Aljo agree that the coronavirus crisis is a big opportunity for them.
“Once the economy opens up, this is the kind of product which will help the MSMEs,” they say.
Aljo says that the pandemic has changed the definition of what the new normal looks like. He says, “A lot of companies were traditionally not borrowing money because they had fairly good balance sheets but when the coronavirus wave dies down, all companies in the market will be looking for more working capital. And we want to make sure that we are there and available for them.”
Among other plans, an Early Payment Programme is an existing offering that will see gaining a lot of momentum in the coming days. It is a dynamic discounting offered without a lender in place. Cash-rich corporate suppliers come in for their vendor base and this will save a lot of trouble in the cash crunch that is expected in the coming times.
(Edited by Javed Gaihlot)