Introduction to SCF

“Supply Chain Finance (SCF) provides short-term credit that optimizes working capital for both the buyer and the seller. It generally involves the use of a technology platform in order to automate transactions and track the invoice approval and settlement process from credit disbursal to there payment on duedate.”

Stake holders in SCF and their Role

• Manufacturer/ Corporate : Key Decision Maker and Major Beneficiary.

• Dealer / Distributor : Borrower

• Supplier/Vendor : Borrower

• Bank / FI’s : Financier

SCF Offering

VENDOR FINANCE (Upstream Finance):  Banks provide Bill/ Invoice discounting facilities to the Channel/Partners(vendors/suppliers)of large companies for making payment son behalf of corporate to the vendors, for the goods supplied by them.

CHANNEL FINANCE (Downstream Finance): Bank/FI provides Short-Term revolving loan facility to the Channel Partners/Dealers/ Distributors of large corporate for purchasing goods from the company and selling it further to customers.

Advantages of SCF

Supplier :•

Early Payment reduces financial dependence on the buyer

•Reduces cost of capital by leveraging the buyers creditrating

•Increases certainty of cash flows

•Provides pre-shipment; WIP financing

   •Financial Discipline

Manufacturer/Corporate :

Minimizes investments in Working Capital

•Reduces Cost of Goods Sold(COGS)

•Reduces total borrow-ing cost.

   •Automation reduces administration cost

  •Increases cash flow

• Increases stability of supply chain.

•Ensures availability of goods for endusers

•Increases the sale

•Financial Discipline

Dealer/Distributor

Provides much needed working capital for purchase of inventory.

•Lower cost of funds then other working capital products

   •Increases sense of financial discipline due to short duration

   •Automation reduces administration cost

   Financiers

   •Diversification of risk

•Quick asset building and fee revenue.

•Cross-sell opportunities •The process of evaluating the need of money makes it simpler by defined movement of goods.

•Defined endues resulting into lower risk of diversion of funds.

SCF Marketing India

 MarketSize–aprox. INR650billion($10bln) Market is mostly fragmented between PSU Banks (SBI,PNB Etc.),Pvt Sector Banks(HDFC, Axis, IndusIndand others),MNC Banks(StanC, HSBC etc.)and NBFC’s(Captive Finance

 Companies of corporate such asTata Capital, Aditya Birla Finance, Hero Fincorp etc.)

Challenges

•Available Capital, Liquidity & regulatory requirements for Banks

•Lack of proper systems & infrastructure (for KYC etc.)

•Low pricing–Managing Cost of Fund.

•Diversions of funds by borrowers for other purposes.

•Non availability of a common platform for­ financers

•Concentration on few selected industries only.

•On boarding & monitoring of dealers/suppliers due to bigger geographies.

•Unsecured nature of lending

•Awareness about the product amongs take holders such as Channel partners and suppliers.

Opportunities & way forward

•E-commerce–Inline with the current trend of Indian Economy moving towards online sales fromoffl-ine platforms banks have a huge opportunity to fund different supply chains.

•Integrated Approach–Opportunity for banks to fund both forward and back ward integration along the value chain. Some of the banks have worked to their advantage in this space.

•OnlinePlatforms/Automation–ThiscanprovideabigleverageintermsofbothintegrationandflowofinformationfortheBanks&otherstakeholders.

•Potential Sectors-Focus on less tapped potential Industries i.e. Commodities, Electricals & Electronics, Consumer Durables, FMCG& Agro based Industries to finance their Supply chain.

    •Focus on shorter periodic Assessments for flexible credit decisioning

    •Templated Innovative products for New Startups

    •Launch of some common platform/association of SCF