Supply Chain Finance in 2021: Opportunity for MSMEs
How can companies to manage liquidity better and strengthen their balance
MSMEs in India today accounts for 30% of the GDP, 33% of the manufactured output, and employ approximately 120 million people. Unfortunately, 5.4 million MSMEs are not registered with the government. Despite the best efforts of the Ministry of Finance to address liquidity issues through RS 3 lakh crore liquidity injection, MSMEs will step into 2021 with a more conservative outlook. Data available from the All India Manufacturers’ Organisation asserts that 43% of MSME units face the risk of closure due to delayed payments, longer than usual order to cash cycles, and ineligibility for access to collateral-free debt.
Both the MSME and OEM sectors in India will walk into 2021 with their respective legacy issues as they look to boost partnerships. However, digital supply chain finance will be a game-changer in OEM-MSME relationships and is likely to enable easier liquidity flow on demand.
2021 is likely to be the year when supply chain finance in India takes center stage. With the government taking policy initiatives to secure MSMEs’ payments within 45 days and redefining the investment brackets for micro, small, and medium enterprises, the liquidity strapped sector is likely to see a new sunrise on the heels of innovation in supply chain financing.
While banks will continue to apply due diligence for approvals of collateral-based debt to MSMEs, new-age supply chain financing platforms will bring alternative risk assessment models in 2021. These new-age supply chain finance platforms through the application of analytics to assess MSMEs’ creditworthiness will offer one-click purchase invoice discounting, and also many more credit & neo banking solutions.
With digital receivables financing, MSMEs will have the opportunity to seek early payments from OEMs in lieu of token discounts on the total invoiced amount. For OEMs, advance payments will unlock an opportunity to leverage idle working capital to make their operating expenses (OPEX) more cost-efficient.
Raj Palan is Director – Supply Chain Finance at Moglix
To learn more about manufacturing and supply chain trends in 2021, download our ebook titled Road to Self-Reliant Manufacturing: Procurement and Supply Chain Insights for 2021 here.