Access to prime capital via anchors like JSW One
Business29 Jul 2024
In this ever-demanding growth fueled market, MSMEs in India face significant challenges in keeping up with growth demand and healthy cashflows, and access to credit is always a critical path to manage this problem statement. The intricate nature and high costs of trade finance, compounded by regulatory demands and lengthy payment cycles, have created a difficult environment for these small enterprises. This limited access to credit severely hampers their ability to expand production and fulfil orders promptly, disrupting corporate delivery schedules and undermining the efficiency of supply chains.
However, anchor-led supply chain financing has emerged amidst these challenges as a promising solution. This innovative approach bridges the working capital gap between large corporates (the anchors) and their network of MSME suppliers, ensuring a seamless flow of goods and services along the supply chain.
The mechanism of anchor-led supply chain financing
Anchor-led supply chain financing works by leveraging the financial strength of large corporates to provide credit support to their MSME suppliers. Here's how it functions:
Access to growth capital: be it upstream early payments or downstream line of credit, supply chain finance has been growth leverage for MSMEs to deliver undisrupted SLAs and have improved cashflows. Capital deployed largely relies on the strength of anchor and transaction data of supply chain providing lender adequate information to offer prime terms and right capital which otherwise not an option made available for MSMEs in open market.
Financial inclusion across MSMEs: Anchor led supply chain enables data backed access into more fragmented MSME segment which allows lenders vibility and appetite to cater to this segment which otherwise is fragmented driving financial inclusion across segment.
Tech-enabled solutions: FinTech platforms have revolutionised this process by integrating with corporate ERP systems, ensuring a smooth transaction journey. These platforms connect seamlessly with banking, payment gateways, and trade booking systems, creating an end-to-end, frictionless experience for all stakeholders.
Benefits for MSMEs
For MSMEs, this financing model provides much-needed liquidity, allowing small enterprises to finance their production cycles and meet delivery deadlines without financial strain. It also helps maintain a steady cash flow, which is critical for their growth and sustainability.
The role of fintech
Fintech companies play a pivotal role in this evolving landscape. They offer advanced, tech-enabled working capital financing solutions that automate much of the manual work involved in trade finance. Platforms like JSW One MSME provide comprehensive solutions that integrate with corporate systems, ensuring a seamless transaction process.
These platforms facilitate early payments and offer insights into invoice management, transaction limits, and credit utilisation. This transparency and organisation enable anchors to effectively manage their credit and collection risks.
A path forward
The demand for sophisticated working capital solutions grows as global trade volumes increase. Anchor-led supply chain financing is crucial in addressing the credit challenges MSMEs face. By providing timely access to credit, this model supports small enterprises' economic growth and contributes to supply chains' overall resilience.
In conclusion, anchor-led credit support is a significant boon for MSMEs. It ensures the smooth operation of supply chains and empowers small businesses to thrive in a competitive market. Recognising this impact, JSW One MSME has been building comprehensive credit programs. These initiatives encompass channel finance, Trade AR solutions, and off-balance sheet options like factoring. Additionally, JSW One MSME offers trade facilities like Letters of Credit (LC) in partnership with tier-1 lenders, providing prime terms exclusive to its customers. As more corporations and financial institutions adopt this model, the future of MSMEs looks promising, paving the way for sustainable economic growth.