Venture debt companies, NBFCs eye spot in supply chain finance

Bengaluru: Non-banking financial companies (NBFCs) and venture debt firms are getting into the business of supply chain finance (SCF).

The move comes amid a liquidity squeeze following the Reserve Bank of India’s (RBI) decision to hike interest rates, even as startups are seeing better customer stickiness.

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

Supply chain finance is a lending solution provided to suppliers and other channel partners of a startup to optimize cashflows.

Stride, which has backed the likes of The Good Glamm Group and Pocket Aces, has seen startups from the ecommerce and automotive segments in its portfolio evince interest in the supply chain finance segment.

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

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

“The demand for supply chain finance is growing, we have already onboarded 1,000 borrowers on the platform, and it will easily go up 5-10 times in the next three-four quarters,” Gandhi said.

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

On May 4, the RBI hiked its key repo rate by 40 basis points (bps) to curb record-high inflation. The step, analysts said, would suck out around $5 billion from the system. In its June review of the monetary policy, RBI is expected to further increase rates.

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

Many suppliers are asking for delayed payment cycles, but the funding slowdown and other economic issues have made it difficult for us to change the payment cycle, said a founder of a startup that recently availed of supply chain financing, requesting anonymity.

Fashioniza, a business-to-business (B2B) commerce startup and logistics startup LetsTransport, have recently availed of supply chain finance services.

Venture debt firm Blacksoil has run a Beta version of its supply chain financing solution among some startups and their merchants.

“We have got into supply chain finance and have run a Beta version through our fintech arm and it has been up and running for nine months,” Blacksoil founder Ankur Bansal told ET.

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

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

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

“We are keenly looking at areas like supply chain financing, and bill discounting requires tech integrated digital lending solutions and we will explore more opportunities there,” founder and chief executive Tushar Agarwal said. Sources said the startup will launch a pilot soon.

Diligence continues to be one of the major challenges for entities that provide supply chain finance to startups.

“We focus mostly on seed-stage startups and due diligence on that itself is difficult. So, it is very hard for us to lend for their suppliers,” said a venture debt firm that was considering a supply chain finance business.

StrideOne’s Gandhi said that providing the right technology solutions and offering a high degree of customisation were big challenges.

“Every business is different and understanding their needs is important…next is nimbleness, we have borrowers from across the city, we need to find the right solutions – digital or offline – for them,” Gandhi added.