By Raja Debnath
MSME Day 2024: Supply chain financing (SCF) is at a critical crossroads within India’s vibrant MSME sector. Currently, SCF is crucial for these businesses, optimizing cash flows and supporting operational growth. Historically, high transaction costs and lack of collateral restricted SCF access. However, digital platforms are rapidly evolving in this landscape, streamlining SCF by enhancing transparency and reducing transaction times. Yet, a significant technology adoption gap persists among the sector, limiting their full utilization of these digital tools.
The global supply chain finance market was valued at Rs 50,000 crore in 2021 and is projected to reach Rs 111,000 crore by 2031. Digital platforms have revolutionized SCF, democratizing access to finance and enabling more efficient operations.
Despite this progress, many small companies struggle to fully adopt these technologies, highlighting the need for inclusive access to digital financing tools. To address this gap, various initiatives are in progress, including digital literacy campaigns, and incentivizing fintech collaborations. These efforts aim to empower MSMEs with the knowledge and infrastructure needed to integrate digital SCF solutions seamlessly.
By closing the technology divide, MSMEs can fully benefit from these advancements, ensuring a more inclusive and prosperous future for the sector.
This optimistic outlook sets the stage for several key future predictions:
1. Increased digitalization
Digitalization will continue to redefine SCF for MSMEs in the coming years. It promises enhanced transparency, efficiency, and firmness across supply chains. Digital SCF solutions can reduce financing costs and significantly improve accessibility for small businesses. Artificial Intelligence (AI) and Machine Learning (ML) will play pivotal roles in predictive analytics and risk assessment, enabling financial institutions to offer tailored financing solutions based on real-time data insights.
Additionally, auto-approval and auto-financing capabilities provided by SCF platforms will ensure that invoices move swiftly through the approval process for MSMEs. Customizable parameters will further ensure greater flexibility and control over financing operations.
2. Focus on Sustainability
Many MSMEs struggle to secure capital for their operations and growth, with the challenges increasing even more when they need funds to invest in green initiatives like clean technology and energy efficiency practices. Fintech platforms will play a crucial role in tackling this challenge by integrating Deep Tier Supply Chain Finance (DTSCF), enhancing visibility, and promoting Environmental, Social, and Governance (ESG) compliance across supply chains.
DTSCF allows anchor buyers to incentivize ESG-aligned practices among suppliers through favorable financing rates tied to ESG KPIs. This approach not only improves reporting accuracy but also optimizes logistics, reduces lead times, and lowers carbon footprints. As market and regulatory demands for ESG reporting grow, DTSCF stands out as a great tool for monitoring and enhancing sustainable practices, necessitating collaborative efforts among stakeholders for effective implementation.
3. Integration of GST
The integration of Goods and Services Tax (GST) with SCF will streamline financial processes for MSMEs. GST compliance ensures transparency and accuracy in financial reporting, which is essential for accessing SCF. Aligning GST compliance with SCF strategies can unlock financial liquidity, improve operational efficiency, and enhance competitiveness for companies in India’s evolving business landscape. This integration will also align well with regulatory compliance, supporting MSMEs in simplifying their reporting practices.
4. Policies & Government Support
Government policies will continue to play a pivotal role in supporting small businesses through simplified compliance procedures and enhanced access to finance. Progressive developments in the government’s initiatives, such as the Raising and Accelerating MSME Performance (RAMP) scheme and regulatory reforms, will aim to create innovation and entrepreneurship. Moreover, incentives for technology adoption and training sessions will empower MSMEs to thrive in a digital-first economy.
5. Globalization
The globalization of markets will reshape the SCF landscape for Indian enterprises. Increasing cross-border trade, international investments, and demand for SCF products from global financial institutions present new growth opportunities. Indian SCF players are expected to capitalize on these trends by expanding their market reach and building strategic partnerships with financial institutions across the world.
Looking ahead, the evolution of financing models over the next decade will be pivotal for MSMEs in India. Embracing digitalization, sustainability practices, and aligning with regulatory frameworks will be imperative for them to remain competitive and robust. As SCF continues to evolve, collaboration between stakeholders, innovative financial solutions, and strategic policy interventions will be essential to driving inclusive growth and economic prosperity for businesses in India.
Ultimately, the future of SCF promises to be a “win-win” alternative, offering remarkable opportunities for MSMEs to thrive in an increasingly interconnected global economy!
Raja Debnath is the Managing Director at Veefin Solutions. Views expressed are personal. Reproducing this content without permission is prohibited.
