Live-Trade based Financing for Small businesses – TechFin Startups are stepping up the game

live trading

MSMEs in India, especially, Micro and Small enterprises have long been underserved by traditional banking and financial institutions –  the report by venture capital firm BLinC invest (2022) highlighted that MSME sector in India had a total credit demand of  ₹ 69.3 trillion and only 15% of this was fulfilled by financial institutions.

While proactive government schemes like MUDRA, TReDS, CGTMSE, ONDC  are encouraging formalization of the MSMEs, the irony of this credit gap is quite apparent –  Micro and Small enterprises who need timely financing the most, often, are not able to furnish collaterals and credit history as required by banks. The medium-sized enterprises  who have formalized their operations, naturally, are well served by financiers. In order to fix this critical issue, we

  • either get Micro & Small enterprises to be more organized and transparent with their documentation 
  • or find a solution that will enable Banks & Financial institutions to make a better assessment of MSME businesses and be more confident of their trade health

This is where TechFin startups like ours, ProFinTech will lead a significant role. 

FinTech Vs TechFin Companies  – are they similar or different?

At the base level, these two companies use different blends of technologies differently; and bring in a lot more efficiency, comfort and ease to the current time-consuming and slow processes.

FinTech companies are the integration of finance and digital technologies and create customer-centric, personalized, seamless and efficient financial solutions for end users – we use many of these solutions on a daily basis, say mobile banking, online payment systems, digital currencies, etc. FinTech, essentially, is the software or applications that simplify financial tasks. 

Through leveraging advanced technologies, FinTechs 

  • simplify complex traditional processes → Digitalization
  • eliminate traditional intermediaries, physical offices
  • lead personalization in the services offered   
  • create end user centric financial experiences drawn from behavioral insights

TechFin companies, as the name implies, are Tech-first and extend their deep technological expertise and infrastructural frameworks to solve existing problems in the financial sector. This set of companies leverage the current data sets, end user bases in order to bring efficiencies (time and cost centric), new revenue streams and to optimize user experiences. 

TechFin, primarily, being technology companies, leverage their technological infrastructure and Big Data capabilities in order to   

  • make finance more a seamless experience to end users
  • create faster access to financial services via disruptive conceptual frameworks 
  • build highly robust and secure financial infrastructures

Lets look at the kind of distinct thinking that ProFinTech, as a TechFin, is bringing to MSME financing!

ProFinTech facilitates Live-trade based financing for small businesses

ProFintech leverages a data-driven approach, which allows 360 degree visibility to trade-based cash flow and business performance of a MSME or an entrepreneur. This becomes the base from which both the creditworthiness and risk profile of a MSME or an entrepreneur are established – this means, financiers can rely on the real-time trade/business transactions and make a more informed & faster loan decision. As you rightly understood, this approach is different from traditional lending processes where the loan seeker (a MSME) has to provide volumes of his/her credit history to get an approved loan. 

The superiority of  ProFinTech lies in its capability 

  • to facilitate transaction level financing,
  • to embed financing layers at various stages of the trading process, from Order – to Payment in B2B environments 
  • to collect, analyze and integrate data from diverse sources to profile a specific MSME : data points related to daily trade are supplemented with non-trade data points in order to have an insightful tracking of the MSME’s payment behaviors and trade discipline etc. These data points are processed through algorithms, which establish correlations and interactions between specific trade + consumption behaviors and creditworthiness and result in a much more nuanced and truer assessment of the MSME who wants loan/financing.

Do read this post on how ProFinTech’s Live-trade based Financing is a low-risk loan decision for Banks and NBFCs, and a stress-free loan process for MSMEs 

ProFinTech’s Knowledge Graph approach 

A Knowledge Graph is a data structure that collects a disparate set of documents and organizes them into a network of interconnected & contextual data. This allows us to discover insightful patterns about an entity (here MSME, or an enterprise). In the case of MSME Financing, a Knowledge Graph has diverse trade data sources like invoices, purchase orders, shipping documents etc integrated – these data points are linked to form a  network that captures the relationship between entities, transactions, cash flows etc.

Knowledge Graph
Knowledge Graph, Google is the Source

Nett nett, data collection and analytics are at the heart of this process. The internally developed algorithms that seek data correlations will advance to machine learning and AI.   

Data sets used by Traditional banks  Data sets used/can be used by ProFinTech 
1. Cash flow processed from bank accounts1. GST data analysis (only after getting consent from the client)
2. Projected revenue and expenses 2. Cash flow – its sources and types  
etc3. Strength of Trade network (long term buyers, newly acquired buyers, financial well-being of buyers  etc)
3. Contracts entered in, Contracts terminated
4.  Business performance
5. Invoices, Purchase orders, Shipping documents etc
6. Customers’ satisfaction with MSME’s products and services
etc 
Do read our post on ‘The Power of Graph-based AI for MSMEs’

If you want to understand how ProFinTech builds data-centric insights about MSMEs business and bridges them to financiers for a simpler, easier and faster trade financing process, connect with us or write to us. We would be happy to take you through our Tech Stack and showcase the ongoing work with a few of our Anchoring Customers. 

Credit : Jyothsna, Notes taken from internal conversations between Founders and Data + Tech team, Google

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To learn more about ProFinTech and our innovations in trade finance, connect with us at info@profintech.in
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