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As credit scores take a major hit, the need of the hour is for a way for MSMEs to get the cash they need on hand to enable growth, without being hindered by low credit scores due to a Black Swan event like COVID

AI-based solutions are able to look at multiple credit risk factors on a dynamic basis, including granular factors like their day to day business spending and expenditure

In the months and years to come, digital SCF will likely play a significant role in empowering MSMEs and driving growth

The Indian economy today is at a major turning point. In the post-COVID recovery-oriented scenario, it’s up to the over  63 million MSMEs in India to act as a catalyst for sustained economic growth. There are two major challenges in their way, however. Firstly, the pandemic was a massive externality which created a cash crunch that persists to this day. Businesses need cash on hand to address day to day variations in cash flow needs.

At the same time, however, many MSMEs saw their credit scores take a major hit in the aftermath of the crisis. This created a vicious cycle where MSMEs were both in need of money to grow but unable to secure the finances to do so because of lower credit score. In this situation, the need of the hour is for a way for MSMEs to get the cash they need on hand to enable growth, without being hindered by low credit score due to a Black Swan event like COVID.

In this scenario, next-generation financial companies are stepping up by delivering technology-powered solutions in form of supply chain finance, that allow financiers to go beyond the on-paper credit scores and look at underlying positive factors when purchasing MSME invoices. In this piece, we’ll take a look at some of the ways in which technology is enabling better access to supply chain financing.

AI offers More “Intelligence” Than Just Scores

 Many newer digital supply chain financing solutions leverage the power of artificial intelligence to offer prospective invoice buyers a more nuanced take on their financial situation. AI-based solutions are able to look at multiple credit risk factors on a dynamic basis, including granular factors like their day to day business spending and expenditure.

These AI solutions are also able to better reference baseline credit health over a long period of time, in comparison to an on-paper number. If, for instance, an MSME with a “bad” credit score owing to factors related to the pandemic has proven to have a better trade credit history over the prior few months, an AI-based supply-chain financing would identify this and greenlight an invoice finance facility to an MSME, which might not have happened if a conventional credit rating was taken into consideration.

Digital Solutions Look At A Much Wider Range Of Credit Health Factors

Closely tied into the usage of AI in next generation supply chain financing is the fact that digital solutions often take into account a much wider range of credit factors when coming to a decision. These alternate credit factors include everything from the volume of POS transactions at a store to details about the MSME’s end customers to the owner’s social and legal history.

Alternate credit factors leveraged by digital supply chain financing solutions can greatly increase the likelihood that MSMEs receive the financing they need, when they need it.

Mobile App-Based SCF Solutions 

 Apart from the efficiency and greater granularity in credit checking that digital enables, SCF solutions built for smartphones make supply chain financing on the whole significantly more approachable for the average business owner, especially those that are translated into vernacular languages.

Small business owners, instead of having to deal with piles of paperwork and potential delays, can instead benefit from the interconnectivity of banking, Aadhar, and other systems by having to submit less documentation, and doing so from the convenience of their phone. By making supply chain financing more approachable to small business owners, digital providers are taking away key points of friction, encouraging greater uptake.

The need of the hour is for small business owners to get cash on hand, as MSMEs are poised to drive national economic recovery. Supply chain financing is a great way to bridge the cash flow gap, and digital solutions, by leveraging AI, alternate credit factors, and the greater accessibility of smartphone tech, are making it easier and faster for MSMEs to avail financing than ever before. In the months and years to come, digital SCF will likely play a significant role in empowering MSMEs and driving growth.