Webinar on- Domestic Trade Finance Vs Evolving Solutions
June 15, 2020
Resurgent India Knowledge Series Presents
Webinar on- “Domestic Trade Finance Vs Evolving Solutions”
Moderated By- Mr. K.K Gupta, Director- Resurgent India Limited
Speaker-Mr Karunenedra Jasti, President- The Federation of Telangana Chambers of Commerce and Industry (FTCCI), Mr. Ramakant Irani, Sr VP, FTCCI, Mr. Hari Govind Prasad, Chairman-Banking, Finance, and Insurance Committee, FTCCI, Mr. Dhruv Bajaj, Director- Encash
- Trade finance improves the supply chain that helps companies to go beyond geographies and create accessibility and reachability for their products.
- Alternative trade finance counters the issues of time, speed, collateral, high cost of finance which are associated with traditional financing.
- Digitization and Fintechs are changing the shape of financing is approached in India. Innovative solutions are developing to cater to the new-age demands that crop up in financing. Fintechs are coming up with customized products using artificial intelligence and data analytics.
- As per the statistics collated by the International Chamber of Commerce, the rate of default and NPA are negligible in trade finance products as compared to any other type of financing.
- The online presence of buyers and suppliers has made transactions more reliable, secure, and paperless.
The value proposition to Customer
- Cost-saving- cheaper funds & rates are dynamic and negotiable.
- Additional funds-over and above assessed limit and provide faster financing as compared to WC/CC limits.
- Better supply chain proposition - Can expand supply network across geographies-In an LC transaction, there is the transfer of risk from the buyer to the bank(issuer)From a supplier's perspective, risk increases in the descending order. Supplying against advance payment, Letter of Credit, Factoring, Invoice discounting, open account.
- Used by companies that have a very large supply chain. Under this undertaking, big corporations/ manufacturers will document multiple channel agreements with a financial institution that will extend credit limits to dealers to purchase raw materials from manufacturers.
- It is an off-balance sheet product and provides working capital limits to its dealers to make purchases from them. This way manufacturers reduce debtors from their books and simultaneously do not increase borrowing.
Changing trade finance ecosystem in India
- There are four major forces that are inspiring changes in the field of trade financing.
- Mobile & internet penetration: 85% mobile penetration across India and 95% in SMEs and corporations have enabled faster connectivity and accessibility.
- API Integration: India is one of the few countries that have a biometric database of all its citizens. API integration of databases makes the process of KYC digitized, secure, and organized. Further integration is GST and MCA data with Aadhar will enable the creditors to assess limits without evaluating physical documents.
- Regulatory Support: Continual support from regulatory authorities in terms of licensing fintech startups and initiatives has improved the credit system in India. The issuing of licenses to TREDS & P2P platforms has brought significant change. It also has created a sandbox for fintech to give a pilot platform to test and run their product or technology. On the success of which it will help regularize the product or technology.
- Innovative Technologies: P2P Lending, blockchain, Artificial Intelligence are technologies which are been developed and adopted in the Indian markets and have improved in recent times.
- It is an RBI floated trade discounting mechanism for MSMEs whose payments are due with large corporations and organizations. Multiple banks and NBFCs bid for the invoices raised by the seller and act as a financier of those invoices. It has interlinked sellers, buyers, and financiers on a single platform.
- 25 Banks/NBFCs and factoring units are associated with this platform as financiers. Over 500 corporate and 8000+ MSMEs are onboard this platform as buyers and sellers.
- This mechanism strives to ensure timely payment to MSMEs, reduced interest costs, and better rates to corporate via reverse factoring.
- Dynamic Financing is a platform where a seller offers the buyer an immediate cash discount if he agrees to pay the dues upfront without any credit days. There is no involvement of third-party/banks. The buyer can select the seller based on the maximum cash discount offered and release his payment.
- Blockchain is a type of new technology that creates blocks of valid transactions and enables peer-to-peer transactions. It ensures secure transactions, no third-party intermediation which saves cost. It is going to be the future of trade finance a couple of years down the line
- The slowdown in the global economy will affect the number of trade finance transactions due to a reduction in demand and disruptions in the supply chain.
- Trade finance will get more digitized. Blockchain transactions will become more popular and trade documents may get digitized.
- The lower number of trade transactions with higher proportions of digitized trade finance products is expected.
►Watch the webinar here: https://www.youtube.com/watch?v=NCUeDQcz-gw&t=39s