Trade finance has always been an essential component of the global supply chain. However, with the advent of a globalised world, supply chains have become more complex, involving multiple tiers of suppliers. The Micro, Small and Medium Enterprises (MSMEs) sector has also grown in importance, contributing as much as 30% to India's GDP. Despite the growth of the MSME sector, they struggle to be a part of the mainstream financial ecosystem. This is where Deep Tier Supply Chain Finance comes into play.
Deep Tier Financing is a business solution that leverages business relationships within the supply chain. It focuses on providing working capital to small downstream suppliers in Tiers 2, 3 and so on bringing transparency and visibility across the value chain. The Deep Tier Supply Chain Financing (DTSCF) system enhances liquidity and traceability, minimizes financing expenses and risk evaluation, and decreases the overall cost of goods.
One of the significant issues in the global trade system is the trade financing gap. The Asian Development Bank (ADB) has reported that the worldwide trade financing gap grew from $1.5 trillion in 2018 to $1.7 trillion in 2020. Economic and financial uncertainties since the pandemic increased the gap by another $2 trillion. MSMEs have borne the brunt of this gap, with challenges ranging from low financial and technological literacy to inefficiency in providing collaterals and compliance requirements.
However, the digital transformation of the supply chain ecosystem offers a ray of hope for MSMEs. Technological advancements have ushered in an era of enhanced transparency and traceability, significantly benefiting various sectors and industries. Fintechs are leveraging technology in the lending space with custom-made models to help overcome credit history and score challenges. Artificial Intelligence provides insights and predictions based on alternate data like GST, transaction history, market trends, sectoral trends and local and global economic factors. Blockchain technology allows supply chain finance to broaden its horizon for lending to cross-border trades.
The future of Deep Tier Supply Chain Finance is bright. The contribution of MSMEs to the national and global GDP is commendable. Exports, manufacturing, and many other industries need a robust and thriving supply chain. This scenario will give rise to competition and, in turn, scale the pace ..
Read more at: https://economictimes.indiatimes.com/small-biz/sme-sector/deep-tier-financing-in-india-the-future-of-sustainable-supply-chain-finance/articleshow/101588904.cms
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