receivables - global trade review (gtr)
TRANSCRIPT
Trade
Receivables
Discounting
System
MSMEs : Growth Engine for the Indian Economy
Source: MSME at a Glance Report 2016; KPMG Report
7.04%
30.50%
37.54%
Manufacturing Services % of GDP
Indian MSMEs share constitutes 37.5% of the total GDP
Source: MSME Annual Report 2015-16
MSMEs: Pillar of the Economy growing at CAGR of 11.5%
70 Mnemployment generation
45% of manufacturing
output
40% of overall exports
Growth of MSMEs
Legal & Regulatory Framework
Government Support
Finance Infrastructure
• MSMED Act 2006 and PSL status have been significant policy interventions
• MSMEs in India have received fillip through Government initiatives like Make in India, Skill India and Digital India
• Credit Rating Agencies, factoring companies & platforms like TReDS are intended to improve credit flow in MSMEs
Enabling environment being created for MSME growth
MSME sector wise % of GDP, 2012-13
• “Make in India” initiative - increase the share ofmanufacturing in the GDP
• Skill India Initiative
• Public procurement policy - Procure a minimum of 20per cent (by value) from MSEs
• Micro and small enterprises (MSE) cluster developmentprogramme (MSE-CDP)
• Prime Minister’s Employment Generation Programme(PMEGP)
• PMKVY (Pradhan Mantri Kaushal Vikas Yojana)
• National Manufacturing Competitiveness Programme
Government Initiatives
• Plays a pivotal role in the economy.
• Provides employment opportunities outsideagriculture sector, primarily Services sector
• Carters to local & foreign markets
• Important partner in the value chain of Largeenterprises & MNCs / Global companies
• Acts as a Raw material supplier / Contractmanufacturer/SCM Partner / service provider
• Evolves into strategic partner providinginnovative / niche manufacturing / advanced &low-cost technology & superior services.
• MSMEs capitalise on the trade opportunitiesowing to India’s close proximity to keyautomotive markets like the ASEAN, Japan,Korea and Europe etc
Strategic Importance of MSMEs
MSMEsIndian
Economy
MSMEs : Growth Engine for the Indian Economy
Dearth of easy financing continues to plague MSMEs
Challenges faced by MSMEs
The Trade Receivables Discounting platform aims to bridge thefinancing gap between MSMEs and formal credit institutions
22%
78%
Formal Informal
Sources of Finance (%)
Low formal sector coverage leads to high debt cost
Source: IFC Report 2013
Source: FirstBiz-Greyhound Knowledge Group SME Survey, 2014 (n=540)
70%
72%
74%
76%
78%
79%
Labour Laws & availability ofaffordable skilled labour
Absense of Marketingplatforms and Distribution…
Lack of Infrastructure Facilities
Unavailability of ModernTechnology
Limiting Regulatory Policies
Dearth of Easy Finance &Credit Instruments
• High cost of funds owing to higher default risk
• Lack of adequate collateral
• No credit history due to a weak financial profile
• Complex documentation processes of banks
• Inefficient working capital management
% of respondents
Need for TREDS
10% coverage by
formal institutions
Only about 10% of the factoring market in India covered under formal bill discounting system in
2014. In the current scenario, lack of adequate finance, especially working capital finance has
become the biggest challenge for MSMEs, affecting their liquidity and business
High risk perception and limited access of MSMEs to adequate collateral are major reasons why
formal financial institutions have limited their exposure to this sector
High stamp duty and limited regulatory framework have also been acting as impediments against
the growth of MSMEs
To address the above challenges, the Reserve Bank of India envisaged the idea of an e-
discounting system on the lines of the successfully executed Mexican NAFIN Cardenas model
Citing the need for and use of Trade Receivables Discounting System (TREDS) for improving flow of funds to MSME sector, the
RBI granted approval to Axis Bank under the Payment and Settlement System (PSS) Act 2007 for setting up a (TREDS)
platform.
The platform is known as Invoice mart.
** A.Treds Limited (subsidiary of Axis Bank) was incorporated in 2016 and is headquartered in Mumbai, India
Genesis of A.TREDS LTD
A 50:50 joint venture of twoIndian steel conglomerate – theSteel Authority of India Ltd(SAIL) and Tata Steel operatingthe world’s largest e-Marketplace for steel and steelproducts
The Third LargestPrivate sector bank inIndia
The Market Participants
A.TREDS will be operating the online receivables discounting platform for facilitating the short term financial transactions in a
smooth and efficient manner among the following market participants:
SME 1
SME 2
C2C1
F1
F2
F3 SME 3
Buyers (Large Corporates)
MSME Sellers Financiers (Banks/ NBFC Factors)
1
Seller sends goods to buyer
2Seller raises invoice on platform
3
Buyer receives goods and does quality and quantity check
4Buyer logs on platform and is able to view invoice
5
Buyer verifies invoice, accepts for payment and provides due date
6Invoice moves to queue of financiers
7
Financiers able to view all invoices accepted by various buyers on the platform
How it Works?
Bidding window closes for financiers
9
Quotes are visible to seller for his acceptance
108Financiers quote their rate of interest
11
Seller accepts quote with lowest rate of interest
12Financier winning the bid is intimated
13
Funds are transferred from financier’s a/c to seller’s a/c
14On Due date funds are debited from buyer’s a/c and credited to financier’s a/c
How it Works? (Contd…)
Why Migrate to TReDS?
• Better terms of contract in
terms of flexible usance
period upto 180 days
• Tool for lowering
procurement costs
• Efficient working capital
management & future cash
flow management
• Access to MIS and analytics
based on data of past
transactions
TReDS Platform
What’s in it for the
Corporate Buyers?
• Reduced acquisition and
servicing cost to MSMEs
• Better risk management
due to shift of risk to large
blue chip buyer
• Priority Sector Lending
benefits & exposure
What’s in it for
Banks and FIs?
• Improved working capital
management due to quicker
turnaround of receivables
• Better price discovery
• Reduced cost of funds &
mitigation of uncertainty
of payment
• Non collateralized and non-
recourse financing
What’s in it for the
MSME Sellers?
Strategic Advantage : A.TREDS Ltd
Business Know How• Promoter – one of
the market leaders inbanking with strongunderstanding ofbusiness
• Extensive dealingwith financiersthrough Syndication& correspondingbankingarrangement
Access to Large Corporates
• Significant history ofdealing with largecorporates across arrayof services such ascredit, Transaction Bkg.
• Perfectly positioned totap existing customerbase
Expertise in Dealing with MSMEs
• Promoter has strongMSME franchise forover a decade
• Dedicated facilitiesto cater to MSMEbusiness
Technology Know How
• In-depth knowledgeand experience inB2B platforms
• Promoter runsIndia’s largest B2Becommerce platformand world’s largesteMarketplace forsteel
Right synergy : Deep understanding of Trade Finance & E –Commerce (Auction) Business
E-Marketplace Lending: Digital Financing solutions for MSMEs
Top Funded Sector: SME
lending
Growth of online consumer lending in India
Capital FloatFunding: 16 Million USD
LendingKartFunding: 9.5 Million USD
NeoGrowthFunding: 4.6 Million USD
• The new trends in SME financing are getting influenced bydigital revolution includes analytics based lending, peer topeer lending and many other variants
• New age NBFCs like Capital Float, LendingKart, NeoGrowthand Credex through their proprietary credit models anddigital platforms have been able to finance businesses thathave not generally been targeted by traditional banks
• The market places offer a fundamentally lower-costoperating model, data advantage in scoring risk and asuperior customer (borrower) experience, driven by speedand convenience
• Few companies also operate Discounting platforms andfacilitate pre and post shipment finance
Investment in Indian fintechs have grown 7x in 2015 YoY
0.145
1.2
2014 2015
Investments (USD Bn)
companies in the P2P and SMElending space, with more than half
founded between January 2014to July 2015.
~30
Investment in alternate lending companies from January 2014
to July 2015.
~27 Million
USD
Source: Marketplace Lending, Deloitte; NBFCs: The Changing Landscape, Assocham 2015
Source: Fintech: Redefining banking for customers, CII 2016
Lending Business Models: Changing Channels
Marketplace Lending (MPLs)
Loan
Lendor(s) Borrower(s)loan repayments
(Fees/Commissions)
• Marketplace lenders (MPLs) directly match lenders
with borrowers via online platforms.
• They make money from fees and commissions from
borrowers and lenders
• MPLs use traditional, bank-like, credit-scoring
approaches, and publicise these credit risk scores
• MPLs offer transparency and control to lenders, such
as through disclosure on recipients of funds lent out
Source: Marketplace Lending, Deloitte
TReDS as a unique Marketplace Model
• TReDS provides a platform which enables ‘’Price
Discovery” of interest rates charged to MSMEs/Buyer
through a transparent bidding process, thus ensuring
cheapest working capital financing for MSMEs
• MSMEs are provided non-recourse, non- collateralised
financing and Financiers get Priority Lending Benefits
• Acts as a tool for buyers to onboard & adopt more
MSME suppliers into their vendor list. Better financial
health of MSMEs ensures quality & timely delivery of
material & Services to buyers.
The Way Forward …
• TReDS provides opportunities for all and shall facilitate GTR’s intent international corporates looking to enter the Indian market & Financial institutions providing funding options
• Futuristic aspect like “mobile app” shall ease the process & would lead to “Financing on the go”
• Credit risk insurance , secondary market opportunities, scope expansion to bring in the Non-PSL portfolio & export bills into TReDSfinancing solution purview would define the way forward
• Moving away from paper based & traditional trade to technologically superior, transparent, secure and agile platform like TReDS will help cost optimisation, better efficiency and heightened growth
• MSMEs are well poised to capitalise on the global trade opportunities
• TReDS is an appropriate platform to provide the MSMEs the financial solutions
• Will enable MSMEs to migrate to large players, compete in a equitable manner domestically & spread their wings globally
• Use of electronic & digital methods of payment has risen exponentially in India. Unique formal credit systems and Fintech nature of TReDS has appropriate acceptability
THANK YOU