![The Supply Chain Financing sector in the post pandemic times The Supply Chain Financing sector in the post pandemic times](https://varindia.com/storage/news/uploads/2018/02/62de337639caa.jpg)
The pandemic not only hit the global supply chain sector hard but it also highlighted the importance of supply chain financing during these uncertain times
The pandemic has taught manufacturing companies how important it is to have contingency plans to deal with any kind of uncertainty. The supply chain and logistics sector has particularly experienced a big disruption as a result of it. We are all aware of how the lockdown affected the supply chain globally, impacting many other industries as a result and also leading to the fallout of many smaller economies.
However, in spite of challenges like labour shortage, raw material crunch, transportation bottlenecks, and disruption in the national and international movement, the massive rise of e-commerce has brought about faster digital adoption.
“This has resulted in the overall growth of the sector,” observes Harshit Mittal, Co-founder & CTO of SupplyNote. “To meet consumer expectations for speedy delivery, customization, product availability and easy returns, the focus on technology adoption has shifted from a ‘want’ to an absolute ‘need’. With the recent spotlight on the next generation of e-commerce (q-commerce), the need of the hour is to be fast, efficient, and execute at scale.”
While another global lockdown seems unlikely, businesses need to be prepared for uncertainties of any kind. Technology integration combined with predictive analytics can help in enhancing planning and decision support systems, detecting buying trends, forecasting inventory purchases, and automating time-consuming warehousing operations.
Supply Chain Financing – a game changer
Like any other business, Working Capital Management is a critical facet of the supply chain business. Taking the example of a vast country like India, traditionally 80% of the physical supply chain - be it a supplier across tiers to Medium/Large Enterprises or the forward Supply Chain in terms of distributors/sub-dealers/retailers - is managed by MSME.
What was happening earlier, as explained by Sandeep Kakar, Chief Business Officer (CBO) – Veefin that these Indian MSMEs have been following an age-old system of transacting be it B2B or B2C in physical form. “Providing Working Capital (WC) finance for inventory or debtor finance based on physical formats has been a challenge for Banks. Hence the Banks & Financial Institutions adopted financing the MSME based on the collateral value which they can provide. But MSMEs usually didn’t have the collateral to provide and hence they primarily relied on informal credit either through their supplier or unorganised capital providers. Both these sources were not certain and expensive,” he explains.
The popularity of Supply chain financing (SCF) has started a sea change in a way that it assisted firms and their supply chain participants by increasing the velocity of cash flow and making them more consistent. Additionally, SCF is a much more amenable mode of managing working capital since it helps to track the cost of financing at a unit level, keeps the debt ratios under control, and can be obtained at a much lower cost.
“SCF did not just survive the global shock of the pandemic; it thrived. Now, we are seeing strong recovery trends. What's certain both in India and globally is that the market is quickly transforming as organisations look for more agile and intuitive approaches to supply chain finance. Globally, SCF has been widely accepted, and its importance has increased after the Covid-19 pandemic,” says Sandeep.
The SCF market has seen immense growth. According to the World Supply Chain Finance Report 2021, the global volumes are noted to have jumped by 35% between 2019 and 2020, to top $1.3 billion.
“The pandemic not only underlined the criticality but also the importance of supply chain finance for the market as it came to the aid of the slowing economy in these uncertain times,” points out Devang Mundhra, Chief Technology and Product Officer at KredX. “The financial access and backup available to suppliers in the form of SCF kept the market afloat and emerged as one of the most proficient ways to improve supply chain resilience and sustainability thereby. The SCF volumes have been on the rise over the past few years but it has seen a huge uptick in the last 2 years in India.”
Due to its increasing demands, the SCF space has seen a good adoption of new technologies globally. Technologies like Machine Learning, Artificial Intelligence (AI), Blockchain, Internet of Things (IOT) are at their nascent stages in the SCF industry. The use of these advanced tools is expected to make the entire SCF process more transparent, efficient, responsive, and reactive.
However, compared with global counterparts, SCF penetration is much slower in India, according to Sandeep Kakar. It is estimated that the Indian SCF market size is approx. Rs.80,000 crore, which represents less than 5% of the entire banking system's outstanding assets.
Nevertheless, SCF has great potential to enjoy much greater prominence in the coming years. “The need of the hour is a healthy collaboration of technological and human capabilities and that’s the only way to help the industry overcome future disruptions,” sums up Devang Mundhra.
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