Supply Chain Financing Trends To Watch For In 2022

Pramit Joshi, Director, Credlix

With 14 years of experience, Pramit is well versed in sectors like Trade Finance, Risk Management, Project Finance, Banking, Macro Economics, and more.

In 2022, the history books will likely have a special bookmark to enable readers to skip past the horrors of the last two years. Even before the pandemic had fully enveloped the globe, the strain on supply chains across the world was amply evident. Brexit threatened more than just political stability in Europe, and China and the US were embroiled in a shouting match over trade tariffs. The pandemic onslaught from Dec 2019 and resultant whipsaw effect only accelerated the need for more robust, responsive and diversified risk across global supply chains. The top trend for the foreseeable future was the 'digitalization' of the supply chain.

Making Bold Predictions:
Fast forward to January 2022, and we have seen decades of volatility compressed in two years. The global trade industry has tested supply chain resilience to its breaking point. Complete lock downs and severe bottlenecks are raising freight prices and inflation has made us conscious of the vulnerability of global supply chains. Further, the pandemic has taken a new detour (read: Omicron) and is threatening to derail optimistic plans of a robust economic bounce back. However, this time it feels that we are getting into a period of stability and sustained growth. Surely, inflation and increase in interest rates are something to watch out for.

The Case For Supply Chain Financing:
The Indian Government's official MSME report of 2021 highlights how vital the MSME sector is to India's growth story. More than six lakh non-agriculture MSMEs create upwards of 11 crore jobs, nearly 50 percent of merchandise exports contribute to over 30 percent to the country's GDP. An incredible 82 percent of MSMEs reported facing a cash shortage, temporary closure or both due to the adverse effects of the COVID-19 pandemic. And yet, this year has the potential for the country to make a strong comeback due to the increased supply chain digitization, bullish B2B lending, and demand for exports.

Here Are Some Reasons Why Tech-Led Supply Chain Finance Could Hold The Key To Unlocking Rapid Growth In 2022:
• Improved Visibility On Creditworthiness:
While B2B lending has always been around, lending institutions have faced a challenge in understanding credit risk due to the lack of timely and near real-time data to assess the performance of MSMEs. Considering that more than 50 percent of MSMEs in India are based in

rural locations and do not have a standard financial reporting structure, the usual KYC structure has proven inadequate. However, with an increased number of large enterprises and their supplier networks adopting digital supply chain platforms and payment mechanisms, the key to data and credit underwriting has been unlocked.

• Fintech & Governments To The Rescue:
India's phenomenal finTech story for personal finance and lending now shows promising signs on the B2B side. By switching from cash transactions and manual tracking to a digital-first approach to track orders, contract values, performances and predictive order forecasts, large enterprises, MSMEs, and lenders can collaborate on the same digital repository safely and swiftly. The 2021 MSME Report also makes a note of a whopping Rs.3 lakh crore collateral-free loan scheme institutionalized by the Government of India for the benefit of lakhs of MSMEs. This project is a direct validation of the industry, and decision-makers observe it as necessary to revive the national economy. FinTechs plus lender incentives and government-backed schemes will create a credit-rich environment.

• Need For Speed:
A digital supply chain financing solution allows tracking and predictability of orders, hence increased visibility on the end use of working capital financing. With digital payment integrations, the disbursal of funds can be accelerated without compromising the due diligence process. Historical data tracking allows large enterprises to establish stronger relations with a distributed supplier network and incentivise performance through features like early invoice paymenting, better credit terms from lenders and discounts. After the lows of the past two years, this can significantly help improve impact supplier working capital and performance metrics.

• Export-Led Growth:
The Global Manufacturing Hub Risk Index 2021 ranks India ahead of the US as an attractive destination for manufacturing primarily on cost competitiveness parameters. For India to truly live up to this newly acquired tag, quick and sustained credit lines will be essential for MSMEs to achieve export-led growth to leverage the wave of global manufacturing demand coming our way this year. The first three quarters of FY22 have witnessed phenomenal and best ever growth in merchandise exports from India to the world. Global macroeconomic factors and ample liquidity have helped in this revival for manufacturing-led exports from India.

Historical data tracking allows large enterprises to establish stronger relations with a distributed supplier network and incentivise performance through features like early invoice paymenting, better credit terms from lenders and discounts

Pramit Joshi, Director, Credlix

• The Demand Is Back, Baby:
After two years of muted spending patterns, consumer spending is set to hit record levels. As the demand for goods and products increases, large manufacturers and OEMs will turn to their supplier networks to deliver faster, better and stronger. The role of credit in enabling this rise in supply will be vital. Manufacturers and enterprises will drive the transformation of their supplier networks to integrated and end-to-end supply chain management platforms. A massive change is already underway.

Rapid digitization of supply chain finance for MSMEs led by a transformative fintech push and huge lending potential in a recovering global economy is reason enough to be optimistic of more progress this year than in the previous three years combined. The `chain' is only as strong as the weakest link and credit can add serious muscle to the entire value chain in 2022, thereby enabling a great year for growth, digitalization and supply chain financing. As the saying goes: The harder the battle, the sweeter is the victory!