Venture capital firms and NBFCs in supply chain finance

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Bengaluru: Non-bank financial companies (NBFCs) and venture finance companies are moving into the supply chain finance (SCF) sector.

The move comes amid a liquidity crunch following the Reserve Bank of India’s (RBI) decision to raise interest rates, even as startups see better customer retention.

“We are building a solution that will solve the supply chain finance challenges for startups,” said Ishpreet Singh Gandhi, founder and managing partner of venture capital firm Stride Ventures. “We are setting up a separate business that is not part of Stride Ventures.”

Supply chain finance is a lending solution provided to a startup’s suppliers and other distribution partners to optimize cash flow.

Stride, which has backed The Good Glamm Group and Pocket Aces, has seen startups from the e-commerce and automotive segments in its portfolio show interest in the supply chain finance segment.

On Tuesday, Gandhi announced the start of a new NBFC
StrideOne – which offers personalized credit to startups and their suppliers. The NBFC raised Rs 250 crore to develop the product.

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StrideOne, which launched six months ago, has assets under management (AUM) of Rs 200 crore in more than 20 flagship companies.

“Demand for supply chain finance is growing, we have already onboarded 1,000 borrowers on the platform, and it will easily increase 5-10x over the next three or four quarters,” Gandhi said.

Industry sources peg the addressable market value of supply chain finance in India at around Rs 60,000 crore, while the total market value is estimated at Rs 18 lakh crore.

How Supply Chain Finance Works for Startups__Graphic_ETTECHETtech

On May 4, the RBI raised its key rate by 40 basis points (bps) to curb record inflation. The step, analysts say, would suck about $5 billion from the system. In its June review of monetary policy, the RBI is expected to raise rates further.

“Supply chain finance among startups has been a missing link and banks have their own limitations in offering this credit due to the lack of technology and diversity of startups in the ecosystem,” Gandhi said.

Many vendors are asking for delayed payment cycles, but slow funding and other economic issues have made it difficult for us to change the payment cycle, says a founder of a startup that recently took advantage of blockchain funding supply, requesting anonymity.

Fashioniza, a business-to-business (B2B) startup and logistics startup LetsTransport, recently tapped into supply chain finance services.

Venture capital firm Blacksoil has launched a beta version of its supply chain finance solution to select startups and their merchants.

“We got into supply chain finance and ran a beta through our fintech arm and it’s been up and running for nine months,” Blacksoil founder Ankur Bansal told ET.

Blacksoil works with around 12-20 startups in its portfolio of agri-tech and other B2B e-commerce segments opting for supply chain finance and loan sizes between Rs 1 lakh and Rs 10 lakh, Bansal added.

“The segment has developed quite well. When we launched, we saw demand for Rs 10-20 lakh per month, however, today the segment is shelling out around Rs 50 crore per month,” he said.

Neo-bank Stashfin is also eyeing supply chain finance products.

“We are looking carefully at areas such as supply chain finance, and discounting invoices require integrated digital lending solutions and we will explore more opportunities there,” said Founder and Managing Director Tushar. Agarwal. Sources said the startup will launch a pilot soon.

Due diligence continues to be one of the main challenges for entities providing supply chain finance to startups.

Supply chain finance - advantages and disadvantages_Chart_ETTECHETtech

“We mainly focus on early-stage startups and due diligence on that in itself is difficult. So it’s very difficult for us to lend to their suppliers,” said a subprime lender considering a supply chain finance business.

StrideOne’s Gandhi said delivering the right technology solutions and offering a high degree of customization were big challenges.

“Every business is different and it’s important to understand their needs… Next comes agility, we have borrowers from all over town, we need to find the right solutions – digital or offline – for them,” Gandhi added. .

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