How Vayana Network aims to solve trade finance for India’s SME sector amidst coronavirus

Pune-based trade finance startup Vayana Network has been helping the SME and MSME sector cope with the problems posed by the coronavirus pandemic.

How Vayana Network aims to solve trade finance for India’s SME sector amidst coronavirus

Friday July 17, 2020,

8 min Read

With trade prospects diminishing amidst COVID-19, India’s small-and-medium enterprises (SME) sector — one of the largest in the world — could be exposed to life-threatening risks. With the government targeting an ambitious $5 trillion economy, trade was anticipated to climb steadily in 2020.

However, the pandemic caused widespread job losses, pay cuts, decreased consumer spending, and a looming recession that have hampered domestic consumption, while disruptions in supply chain logistics and demand uncertainties have thwarted exports.

Trade financing could be the answer to a lot of these problems. By giving sellers access to credit lines, helping them discern business demands, using predictive analytics to solve problems, recognise changing consumer trends, and optimising their supply chain operations, SMEs could better withstand the downturn in business activity.

Pune-based Vayana Network — one of India’s biggest trade finance companies – is perfectly positioned to help SMEs do just that, and more.

Ram Iyer, Founder of Vayana Network

Ram Iyer, Founder and Chief Executive Officer of Vayana Network

Impact of COVID-19 

The pandemic has helped Vayana capitalise on credit demands by merchants struggling due to COVID-19, especially due to its wide-reaching network and its reputation with bankers. During the lockdown, its primary objective had been to ensure that SMEs have access to adequate working capital to be able to sort out short-term challenges.

Vayana also has several new B2B products in the pipeline, in both the trade financing, as well as GST compliance space. It recently unveiled an early payment programme for corporates and its supply chain, where it agreed to provide affordable credit solutions on unpaid invoices.

However, the most important step the company has taken so far is opening all lines of communication with its clients and partners.

“We’ve had no temper tantrums from our clients, no hysterical questions, no philosophical discussions…everybody was just focussed on each other — how are you, are you healthy, are your workers doing fine — everybody was trying to make sure that there was visibility,” Ram Iyer, Founder and CEO of Vayana Network, tells SMBStory.

The company is also helping its customers navigate the lockdown, acting as a consultant for SMEs on what they should do next.

“Companies need to know how to plan their business, where their costs should be cut. Over the last two months, a lot of our focus has been to get the communication down pat, and help educate companies on what the moratorium means, what they get if they avail it or not avail it, where can companies stretch, how can they get a little more capital, or how can they get access to the Rs 3 lakh crore the government introduced,” says Ram.

As far as its own operations, Vayana says it was not affected by the coronavirus pandemic. In fact, in May, its demand spiked a little, but Ram says he isn’t sure if that could be attributed to the lockdown.

The problem Vayana solves

Vayana is not Ram’s first entrepreneurial stint. An IIM-Ahmedabad graduate, Ram is also the founder of CashTech Solutions, a cash management vendor in Asia, which he sold to Nasdaq-listed Fundtech in 2004.

After CashTech, Ram began selling banks systems to help manage companies trade finance. He realised that there was a need and potential of a company like Vayana after several bankers he worked with told him that even though trade finance was a lucrative proposition, volumes of credit applications were quite low. 

Founded in 2017, Vayana is a B2B trade financial intermediary, which connects SMEs and corporates with financial institutions for low-cost access to trade loans. The company claims to have facilitated $4 billion in loans — without any defaults — to date. 

According to Ram, three primary problems had been preventing the SME sector from scaling up rapidly — a lack of standardisation, utilisation of funds, and coverage. 

1. Lack of standardisation 

For every business, bookkeeping and accounting are done differently within each industry, and sometimes, even among companies in the same industry. 

Seamless integration and standardisation of credit products — for example, credit cards — was lacking in trade finance. Accessing or applying for trade credit was not as easy as swiping a piece of plastic on a machine and entering a pin.

To reduce the banks’ workloads, digital platforms cropped up, attempting to standardise invoices. But uploading documents and filling out online forms for every receipt became tedious very fast.

“It sounds very nice to say that you can go and upload your invoice and fill these four fields, and immediately money will be available to you, but this can’t be an activity you do for every transaction. Every invoice is different,” says Ram.

Vayana decided to drop the idea of standardisation all together. 

“We thought, don’t ask for standardisation. Let everybody talk in their own language — we’ll Google translate it. We said to merchants, ‘whatever format your invoice is in, no problem, just give it to us, we will be able to figure it out’,” he adds. 

2. Utilisation of funds

During his research, Ram found that even when a line of credit was available to buyers and sellers, there was no guarantee or a way to predict if they would utilise those funds. In most cases, the borrower accessed funds only when they really needed it, and that sort of uncertainty did not sit well with banks.

“If you’re a lender, you cannot create a book because you’re going to have to write that in one quarter, somebody used five percent of the credit line, the next they used 70 percent, and so on… There’s no consistency,” he explains.

Banks also have to bear several costs on their part for acquiring customers, and when there is no consistent use of credit, the entire effort becomes expensive. Ram decided to understand what was stopping buyers and sellers from accessing their credit line.

The act of using a credit card, he observed, is all muscle memory and choreographed — you could be having a conversation with a friend when the machine comes towards you, you type in your pin, at most ask for the bill, and that’s it.

While other fintech players created portals and apps to attract more eyeballs, Vayana decided to become as invisible as possible.

The company achieved this by having sellers and buyers simply email them all their invoices, and processing them behind the scenes, no matter how they were recorded.

“Anybody who has a computer — irrespective of age — knows how to email, how to save files, and how to print,” says Ram, adding those are all the things Vayana expects its customers to know.

3. Coverage

For large companies that source materials from hundreds of suppliers of various sizes, having a customised financing plan for each ancillary supplier could be arduous, even for banks that have to underwrite those credit lines.

Tracking repayments is another gruelling task because, typically, and at least for small businesses, not all payment schedules are the same. Moreover, banks don’t want to deal with small companies because they think their net interest margins don’t justify the efforts put into managing these small loans, and therefore, they tend to do business with the big guys.

“It’s like when we buy potatoes; we buy only the big ones because who wants to peel small potatoes – there so many of them,” says Ram. “Most people focus only on the top 10 to 20 percent of the supply chain — the remaining 80 percent may account for only 20 percent of the value, but they have large numbers,” he adds.

Vayana’s created a product that could cater to several types of financing solutions, contingent on variable factors, including the size of the business.

“You have to create a tapestry of financial situations that are relevant for every cohort of the supply chain – large banks for large businesses, small banks, NBFCs and fintech for small businesses. You have to do some match-the-column and you have to standardise financing also because the company’s CFO does not want to be concerned with 25 different lenders, all operating differently, asking for information differently, etc.,” Ram says.

“Corporates like us for the simple reason that we offer a multitude of options to get as much of their supply chain as we can, financed,” he adds.

Finding value in a formidable market

Because of the relationships Vayana has cultivated over the years with corporates and financial institutions, most of the applications that it passes on to banks and NBFCs get approved quickly. The company trades on the trust it has built with all of its stakeholders, and it does so swiftly and successfully.

It claims to have serviced clients from over 25 industries, impacting more than 20,000 MSMEs and 300-plus supply chains, and processing more than 1.8 million invoices. Vayana has a CAGR of 300 percent, with an organic growth rate of up to 45 percent.

It makes most of its money by charging borrowers a nominal annual fee and taking a cut of the interest rates banks charge traders. It claims its USP is its cheap interest rates, and it’s those low rates that have helped it retain customers for so long.

Vayana finds value in working with smaller businesses because combined, it’s a formidable market to tap with high volumes, it says.

Currently present in the US, Singapore, Thailand, Malaysia, Vietnam, and Indonesia, the company is targeting either Japan, South Korea, or Taiwan next.

It has raised $4 million in a Series A round of funding, from investors including Jungle Ventures and Chiratae Ventures. At present, it is in talks with investors to raise another round, details of which it did not reveal.

Edited by Saheli Sen Gupta

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