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MSME Exporters And Importers Don't Have Wide Choice Of Lenders: Kalyan Basu, Vayana Network

"By ensuring ease of access and affordability, MSMEs will be able to focus on the growth of the business, rather than running around to secure funds"

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In an interaction with Urvi Shrivastav, Editorial Lead, BW BFSI; Director & Head, Marketplaces, Vayana Network, Kalyan Basu, speaks about the need of easing out the trade market of MSMEs, their role in the country's GDP, and Vanaya Network's role in facilitating the same.

How is Vayana Network bringing formal finance to the last mile leading to the formalization of small businesses? What are the products and services offered by Vayana Network?

At Vayana Network, we believe, that every business, small or large, should have timely access to affordable and formal sources of working capital finance. Vayana creates supply chain finance programs for corporates and their partners (vendors and dealers), all the way up to the last mile which could be a kirana store or a sole proprietor-led manufacturing unit.

Vayana, with the help of technology and the deep domain experience of its team, has developed products, which make it unit positive for lenders to finance MSMEs, eventually reducing the cost of credit. There are two major reasons which lead to traditional lenders staying away from lending to MSMEs – one, the inability, of small businesses to prove their creditworthiness and second, the cost of servicing them. Our cloud-based solutions help banks reduce their costs, acquire customers digitally, authenticate transactions digitally and monitor repayments.

Every business has its format for invoices. Vayana has developed systems which convert invoices irrespective of their format, into data which is readable for the bank’s systems and a corporate’s ERP. This ensures digital acceptance of the invoice through Vayana’s platform and disbursement of funds by the financier against the invoices accepted by the larger entity.

This core solution is applied to all trade finance products, regardless of the size and type of the business entity.

Apart from the trade finance products suite, Vayana simplifies monitoring and compliance by offering the following solutions to MSMEs:

1. Utilities to file GST returns, generate e-Invoices and e-Way bills, helping them become credit ready.

2. Cashflow management solutions help MSMEs automate receivables/payables and reconciliations

3. GBS (Good Business Score in collaboration with CRIF), gives MSMEs a detailed analysis of their business health based on GST returns.

Last year, Vayana Network received in-principle approval to set up an International Trade Financing Platform (ITFS) at GIFT City, Gujarat, which will allow MSMEs and corporates across the globe to access trade finance in the currency of their choice from financiers anywhere in the world.

These trade finance transactions allow small businesses to build a payment history helping lenders to appraise them based on cashflows for future finance requirements.

How supply chain financing can be an effective solution to address the long pending challenge of access to capital for MSMEs?

SCF allows MSMEs to:

1. Access bank finance based on who they buy from or sell to, rather than the stand-alone risk rating of the borrower (MSME) itself.

2. Access larger volumes of bank credit based on the strength and volume of their trade transactions and the better risk profile of the counterparty (which is a well-rated mid to large corporate), at rates which are significantly lower than they would attract on the strength of their standalone business and finances.

3. MSMEs get paid against their invoices, resulting in timely payments, ensuring they have funds to finance their purchases.

How can MSMEs financially protect their business?

MSMEs can financially protect their business in the following ways: -

1. Credit is a liability - Any credit or loan a business takes is a liability which needs to be repaid. Interest payments on such borrowing also reduces its margin and thus its ability to sustain an adverse business cycle. In these uncertain times, MSMEs need to plan repayment before taking on more credit.

2. Cautious with cashflows – Supply chain glitches are expected to continue for the next couple of years. Business owners need to ensure that they do not end up spending beyond their means forcing them to tap credit or OD lines. They will also need to have stringent monitoring and control on collections.

3. Inventory management – With the spike in the cost of commodities and inputs, businesses need to plan month-on-month for production, restricting inventory to confirmed orders.

4. Insurance – In these uncertain times, it is important to protect the business and key personnel through adequate insurance. This is an expense worth undertaking to ensure continuity and mitigate risk.

What is the importance of enabling ease of access to export/import finance for MSMEs?

MSMEs contribute almost 50% to Indian exports. Many of them have steady, stable, business relationships which they have been servicing well over the years. And yet, growth has always been a problem for MSMEs, who are often unable to build on and expand their existing business. One of the reasons for this is that MSME exporters are constantly weighing growth opportunities against default risks.

MSME exporters (and Importers) do not have a wide choice of lenders, often limited to their existing banking relationship in their own country. They have little ability to discover or be matched to more suited financiers from other countries or to borrow in foreign currencies at affordable rates. Even when funds are available the paperwork and documentation can become cumbersome and time-consuming.

By ensuring ease of access and affordability, MSMEs will be able to focus on the growth of the business, rather than running around to secure funds. Being the largest employer, and a major contributor to exports, their growth and success directly impacts the GDP of the country. Over the coming years, exports are required to contribute over USD 1 trillion, if India’s economy has to become USD 5 trillion by FY 26-27.