Coronavirus pandemic has impacted millions of people around the world. The virus has also affected lakhs of people in India, leading to several lockdowns to curtail the transmission of the virus.
These lockdowns have severely affected various sectors throughout India, chief among these being the restaurant industry. If the coronavirus pandemic lasts for a long period, people may get habituated with the idea of not dining out, which will inevitably take the industry longer to recover.
In India, the restaurant industry has faced numerous challenges because of the COVID-19 outbreak: the end of group dining at restaurants, protecting the health of both the employees and the customers, following the safety regulations laid down by the Government, working with a limited number of workers, running expenditure without revenues to match, etc.
Restaurants can address these challenges by actioning the following:
- Focus on takeaways: Group dining has become a thing of the past due to the coronavirus pandemic. In this situation, focusing on building the business via takeaways would be a wise decision. This would promote social distancing and would prevent the virus from spreading while ensuring operations are sustained.
- Collaboration: Restaurants can collaborate to benefit from each other’s strengths. This would not only reduce cost but also increase the number of customers (combining the customers of both the restaurants). The merged restaurant can prepare their best dishes (for which they are famous) and focus their efforts on selling these (which would also result in zero wastage). Collaboration would also help in merging the workforce and have more people available for extensive cleaning and door-to-door delivery.
- Social media marketing: With the onset of COVID-19, traditional marketing wouldn’t prove to be fruitful. On the contrary, it will be expensive. Owing to the lockdowns, people are getting time to surf on social media. Thus, social media marketing would catch their attention. Restaurants will also be able to connect directly with their customers to build effective customer relationships.
- Opt for online food ordering: Since people cannot go to restaurants, the only way for these businesses to operate would be through food delivery. They can list themselves on Swiggy, Zomato or other food delivery aggregators to increase sales. They can even opt for food orders placed directly through phone calls. This would reduce costs and create a revenue stream.
- Create a social awareness program: The restaurants can create a social awareness program around frontline healthcare workers of COVID-19 by supplying them food. Apart from the element of social service, this can also be marketed or advertised on social media and other digital platforms to create goodwill amongst customers.
- Follow the norms laid down by WHO on hygiene: There are operational challenges in the wake of the pandemic. To overcome those, restaurants should maintain hygiene by extensively using hand sanitizers. They should bear in mind that food safety should be their priority. The working stations should be wiped down at regular intervals using a bleach solution. The executives and valets should be cautious during food delivery and opt for contactless payments.
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An eminent panel of experts from International Financial Corporation, Stanford GSB and CreditEase curated a report and highlighted Capital Float as one of the 100 companies in the world facilitating Financial Inclusion. Our co-founder, Gaurav Hinduja spoke with Anju Patwardhan, MD of CreditEase China on Capital Float’s business model, strategic direction and technological breakthroughs. Read the full interview below.
1. What inspired you to start your business?
The fact that India had more than 50 million SMEs with no access to formal credit who, despite contributing a staggering 15% to the country’s GDP with a high market share of 40% towards employment, had an unmet credit demand of $ 400 billion. Traditional lending institutions are limited by the constraints of their conventional underwriting models that restrict financing due to the volatility of this sector. This, in turn, pushed SMEs to the informal sector where the high interest rates charged by moneylenders fettered borrowers to a chronic cycle of debt. Capital Float was established with the objective to bridge this gap in the market with innovative and flexible credit products for SMEs, delivered in an efficient and customer-friendly manner.
2. Who is your target user base and what is your mission for this group?
Capital Float aims to service high potential, under-served, SMEs with an annual business turnover ranging from Rs 10 lakhs to Rs 100 crore. Our mission is to provide a seamless borrowing experience using customized finance products that cater to the specific needs of different SME segments. Here, technology plays a crucial role in reducing turnaround times, implementing paperless processes and pioneering predictive lending.
Also, we drive our products and processes to realize the national objective of financial inclusion. A recent example of this is the introduction of the Proprietor Loans product that facilitates business growth for micro-entrepreneurs in India. The product targets the small retailer segment such as mom-n-pop stores, salons, medical stores, mobile phone retailers, small restaurants, etc. who face challenges in obtaining loans for business expansion from traditional lenders owing to a lack of formal credit history and sufficient collateral. Capital Float is the first company in India to introduce a product that finances this segment. Moreover, we’ve disbursed the quickest SME loan in India, for this loan, in under 90 seconds.
We designed the Proprietor Loan app in collaboration with IndiaStack. This simple loan app enables small retail store owners to apply for a loan ranging from Rs. 25,000 to Rs. 5 lakhs without having to leave their store. Benefited by the merits of a completely paperless process, the applicant has to merely provide their AADHAAR number to apply for the loan. The app fetches the relevant data using the number and underwrites the customer in real time. We disburse funds to the applicant’s account within minutes of the application. We achieve scale by partnering with ecosystem leaders, such as Metro Cash and Carry, PayTM, Amazon Business, Payworld, etc. and serving storeowners operating on these platforms.
3. What is the central “friction” that your company is striving to overcome/mitigate, and what is distinctive about your strategy for enhancing financial capacity your user base?
Predominantly, traditional banks and non-banks have employed a conventional approach to underwriting. They have constantly shied away from utilizing data points from public sources such as social media, and those that are available from the Government in the form of Aadhaar and GST information. Capital Float has designed its credit underwriting with the fundamental understanding that every SME is different. Leveraging data points from partners in each industry sector along with conventional data, our rigorous credit underwriting engine processes loan applications and disburses funds in real time.
In terms of enhancing the financial capacity of SMEs, we lead a partner-driven approach. The company has partnered with ecosystems across various verticals such as e-commerce (Amazon, Flipkart, PayTM, eBay, Alibaba, Amazon, etc.), retailers (Storeking, Metro Cash & Carry), PoS payment enablers (Mswipe, Pine Labs, Bijlipay, ICICI Merchant Services), digital remittances (Wirecard, Payworld, Eko) etc. By taking an ecosystem led approach, we are able to maintain a low OPEX and cater to a wide range of SMEs without increasing our sales headcount.
We have the widest portfolio of working capital finance products, ranging from Merchant Cash Advance (loans against card swipes) and Supply Chain Finance (loans against bills receivables) to Unsecured Business Loans (traditional business instalments loans) and Proprietor Finance. We designed a unique credit solution called ‘Pay Later’. By using this product, borrowers can make multiple drawdowns from a predefined credit capacity. Interest is charged on the utilized amount and not the entire credit capacity, and the balance gets restored upon repayment. ‘Pay Later’ can be used to make supplier payments within 24 hours.
A collaboration of partnerships with industry leaders and niche products ensure that we can expand our outreach to a majority of our target base and enhance their financial capacity.
4. How does your business model balance the objectives of (a) providing benefits to your user base and (b) meeting the financial targets of your investors?
The SME sector in India is restricted by technical as well as functional limitations that inhibit their access to formal sources of finance. Most small enterprises simply cannot afford to expend time for the lengthy processes and immense documentation requirements that are mandatory to avail a loan from banks or traditional NBFCs. Presenting sufficiently valuable collateral for the loan amount they require is another barrier that most SMEs can’t overcome. Capital Float has a completely digital loan application process that eliminates the need for borrowers to be physically present at a lending institution’s premises to apply for a loan. The use of unconventional data points further reduces the need for a multitude of documentation for credit underwriting. All our SME-oriented credit products are unsecured in nature, which facilitates easy access to finance for a previously ineligible majority of business owners.
Customer satisfaction is immensely significant to us, which drives our efforts to ensure that we offer the best-in-class user experience to our borrowers. This is made possible through continuous innovation that enables us to adapt quickly to the ever-increasing demands of our core target base. Apart from these, we are willing to venture into unexplored SME avenues that face a significant credit deficit. We have recently launched credit products such as Proprietor Loans, Franchise Finance and School Loans for niche customer segments that have previously received little financial backing from lending entities in India. Our constant product & process innovation to reach out to new audience ensures that we never fall short in fulfilling the financial expectations and reinforcing the continual faith of our investors.
5. To what extent, if at all, are traditional deposit-taking financial institutions potential collaborators for fulfilling your mission?
Being an upcoming technology driven lender, we view traditional banks and non-banks as collaborators, not competitors. Capital Float operates India’s largest digital co-lending model, wherein we co-lend with banks, NBFCs and others. We currently have several banks and NBFCs such as RBL, IDFC, IFMR and Tata Capital participating on the platform. Loans are presented on the platform and offered on a first-come- first serve basis. We co-lend up to 30% of each loan to ensure that we have our skin-in- the-game and risks are mitigated. This model works emphatically well, as participating entities are able to leverage the strengths of the other. Banks and large NBFCs possess immense balance sheets, which when made available on the platform lowers our cost of capital. Meanwhile, banks are able to meet their priority sector lending targets by lending to SMEs via the platform. Our data-driven assessment and speed of processes, backed by a robust digital infrastructure significantly lowers the cost of acquisition for participating entities.
The co-lending model currently contributes to 40% of our AUM. We expect this figure to reach 50% of our AUM by end of this financial year.
6. Stepping away (perhaps) from your own company’s mission, what do you see as the major regulatory or technological breakthroughs needed to take a major next step forward in building global financial capacity?
Digital lending companies have evolved as disruptors in traditional financial markets, with an estimated one third of consumers worldwide using FinTech services. To sustain the efforts of this upcoming sector and extend their outreach to the majority of their target group, opening public sources of funding is a necessity that requires government intervention. In India, public funding initiatives such as MUDRA and SIDBI refinances institutions that lend to MSMEs, but within regulations of their own. As a result, refinancing support fails to cover the high operating cost of the small-ticket, short duration unsecured loans that are provided by FinTech lending institutions.
Creating a sustainable digital infrastructure that facilitates easy transfer and recovery of finance offered by FinTech lenders is the need of the hour. This, when implemented via eNACH, will help the digital ecosystem in achieving faster adoption.
Also, enhanced access to government data is yet another factor that will be a game changer for building global financial capacity. With the introduction of a new indirect taxation regime in the form of GST, India has acquired a verified database of tax compliant businesses that offers significant information to determine the credit worthiness of business loan applicants. If this data can be shared with FinTech lenders and credit rating agencies through a secure API, this will result in increasing lending opportunities to myriad SMEs across the country.
Oct 24, 2018
The pharmaceutical and healthcare industry is a significant sector for the Indian economy. In terms of the volume of generic medicines produced, India is the third largest producer in the world and its rank in terms of the industry’s value stands at fourteen. The healthcare segment is expected to reach a valuation of $150 billion by the end of 2017. Like every other industry of the economy, the impact of GST is bound to be felt on the pharma industry as well.
To begin with, as different indirect taxes will be subsumed in a single tax, it will simplify the taxation system. Going further, the GST will affect the pricing, working capital, contracts with vendors, the ERP systems and internal processes in the sector.
To understand the GST impact on pharma companies, we need to be aware of the entire range of the pharmaceutical supply chain. At one end are pharma product manufacturers, contract and API manufacturers and the organisations that market the products in different parts of India. At the other end is a chain of Carrying and Forwarding Agents (C&F), distributors/wholesalers and retailers.
Two key parameters have changed in the pharma industry on account of GST. One is the manufacturing price, because many raw materials for medicines have been shifted from the 5% VAT bracket to the 12% GST bracket. Secondly, many medicinal salts and compounds have been wholly moved from 5% VAT to 12% GST rate on pharma industry. Furthermore, a number of health supplements that were earlier in the 12.5% to 15% tax bracket are now in the 18% to 28% GST bracket. The net effect of all these changes will be a significant hike in the price of medicines.
For a deeper view of the GST impact on pharma industry, we also need to consider the margins at which the complete supply chain works. In this sector, the clearing and forwarding agent has a 4% to 6% margin on the maximum retail price (MRP) of medicines, the distributor works at 7% to 8% margin on the same and the retailer has a margin of 20% on a medicine’s MRP. With the imposition of GST, the pharma companies will need to pay extra for the manufacturing cost, because the cost of raw materials has increased. Eventually, the product’s MRP will be revised to absorb the total effect.
Meanwhile, the government has also taken some steps to control and cap the price of some critical medicines, salts & compounds. This will result in a loss of 2% to 3% for the pharmaceutical manufacturing and marketing companies, who now have to bear higher costs.
From the viewpoint of wholesalers and retailers, the earning margins may not drop immediately, and supplies will be stabilised soon. The bigger concern will be the inventory held by them, on which the new GST rates will apply, although these goods were bought at the older VAT rates. In this case, the distributors and retailers will lose about 3% to 4% on their entire inventory.
Will the GST impact on healthcare industry also influence medical tourism?
By October 2015, the medical tourism sector of India was estimated to have a value of US $3 billion. It was projected to grow to $7-$8 billion by 2020. A number of studies have shown that the cost of healthcare services in India combined with the travelling and accommodation costs is around 30% to 40% lesser than similar medical procedures in first world countries such as the US, Canada, Australia and most Western European countries. The boom in India’s medical tourism has helped to generate more returns for the healthcare industry.
The overall impact of GST on healthcare and medical tourism industry will be a mix of positives and negatives. The diagnostic services have not been burdened by the tax. There is also no tax on medical devices like hearing aids. However, a 5% GST rate has been applied on vaccines, cardiac stents, diagnostic test kits and dialysis equipment. The rate of GST for X-ray tubes, radiotherapy apparatus and surgical instruments will be 12% and for high-end medical equipment, an 18% tax rate will be applied. While patients located in India may end up paying a higher cost for some products and services, the medical tourism industry is expected to grow, as the comparative costs in a few other countries still give an advantage to India.
Yoga, meditation centres and organic living practices in India also attract tourists from other parts of the world. The country is a home to a myriad of alternative practices like Homeopathy, Ayurveda, Siddha and Acupuncture, which are popular among medical tourists. These give an edge to India over Asian countries like UAE, Oman, Singapore, Malaysia and Thailand. However, the GST rate on Ayurvedic products has been raised to 12%. It attracted a levy of only about 5% in the pre-GST regime. This may impact the price of natural medicine products if the manufacturers decide to pass on the burden to customers. Visits to yoga classes will also be expensive, as it is yet another segment that has become taxable under GST.
Overall, the GST impact on healthcare and pharma industry is not fully established. The obvious benefit will be by way of reduced complexities and the consolidation of multiple taxes into a single rate. The negative impacts will be felt in the form of increased prices for customers and reduced margins for businesses in the supply chain. The GST Council is still deliberating over some reforms to alleviate the burden on the people affected.
Capital Float has been taking note of the changing conditions post the implementation of Goods and Services Tax on 01 July 2017. With the aim of promoting entrepreneurship in India, we maintain our convenient lending services to businesses in all the industries including the pharmaceutical and healthcare sector. We support the Make in India initiative and only happy to answer any query that you may have on the finance product that suits your business, loan interest rates and terms.
Oct 24, 2018
Suresh Tanwar owns a flourishing logistics, packaging, and transport business. He handles nearly all aspects of his company, from sales, marketing, operations, and customer service, to finances. Sooner or later, finance, especially the lack of working capital, tends to become a challenge. Suresh needs to invest in his growing business, like any other Small and Medium Enterprise (SME).
This scenario, common among India’s SMEs, calls for smart management of available monetary resources, ensuring that company has the required business capital to keep operations running . After all, the survival of a business is directly dependent on its ability to seize the next growth opportunity. Businesses also inevitably face situations of sudden, unforeseen expenses. If these working capital needs are not duly addressed, business operations can be affected and profit margins can drop.
Here are 7 tips for business owners like Suresh Tanwar to increase their working capital.
1. Try working capital financing
Procurement of a working capital loan through conventional banks is largely prohibitive, for several reasons. Often, small business owners have no collateral to offer against the loan being sought. This is a major reason why traditional financiers tend to reject loan applications from SMEs. Inflexible lending policies, laborious paperwork, and extremely slow disbursement times by banks also act as deterrents.
Faced with the recurring business costs, and the inability to acquire business capital via traditional bank loans and overdrafts, SMEs are quite likely to find themselves in a tight corner.
Working capital financing offers a constructive way out. An increasing number of SMEs are now opting to meet their working capital needs through lenders other than banks and traditional lending institutions. Capital Float is a digital finance company that funds small businesses. We have assisted manufacturers, B2B service providers, buyers, distributors, travel agents, and many other businesses with easy access to timely credit.
A range of custom financial products offered by Capital Float can help solve the problem of increasing working capital. Flexible, fast, friendly, and affordable, these loan offerings ensure borrowers have access to the requisite amount of business capital, right when they need it.
The B2B e-commerce segment is seeing exponential growth in India. A report suggests that the growing presence of B2B e-commerce platforms has offered SMEs access to competitive pricing and has also reduced inventory costs by 40%. This serves to ease the business’ working capital needs considerably.
SMEs have also benefitted greatly from being connected digitally with buyers and sellers through e-procurement. Elimination of middlemen and their related costs means that they earn more revenue. Besides, a digital platform offers SMEs an added advantage of being able to negotiate with a wider base of suppliers. Finally, the process of e-procurement curtails spending.
3.Proactively manage inventory
SMEs need to replenish their inventory constantly. Earlier, there was a need to hold vast amounts of stock, putting pressure on working capital. Miscommunication within departments would also lead to stockpiling and increased costs.
However, rigorous stock checks coupled with e-procurement can bring down such needless expenditure. This greatly eases the burden on working capital. Active management of inventory eliminates the need for advance buying and helps you move towards just-in-time delivery of goods. Efficient inventory management thus holds the key to increasing business capital.
4.Keep track of collections
Businesses often face issues of delayed payments from customers. A smart business manager needs to get past excuses for delayed payments. Creating accurate and timely invoices goes a long way in avoiding deferred returns. Such receivables billing also helps avoid bad debts and cash crunches. Rigorous follow-ups on billing and collections will have a positive effect on the working capital as well.
5.Keeping suppliers happy
Timely payment to suppliers helps develop better working relationships, and works wonders for the business. Besides, it enables SMEs to negotiate better deals. Not being able to pay vendors on time results in a strained working relationship, which could cause delays in deliveries and poor quality of services. Naturally, this can wreak havoc on a business as delays and operational inefficiencies eat into working capital.
Keeping suppliers happy is likely to have added benefits for SMEs in the form of discounts that largely serve to ease the need for working capital. Courtesy early payment, bulk supply and/or regular orders become easier, ensuring that business capital isn’t affected, adding that much more to the liquidity of funds.
6.Keep expenses transparent
It is no mean task to run a business smoothly, especially when it comes to managing finances and having to put aside working capital to seize the next big opportunity. Even smaller hidden expenses can have a cumulative negative impact on an enterprise’s cash flow. Making expenses more visible therefore is an intelligent way of managing finances. This includes setting clear rules in areas such as travel and accommodation, deploying necessary tools to monitor expense claims, and so on.
Running into financial troubles is a given for any enterprise, big or small. How well a cash crunch is handled depends on how much cash a business has in its kitty for unexpected expenses. A financing firm like Capital Float enables enterprises across industries with quick and easy access to funds, to tide over times like these.
A trustworthy partner will walk that extra mile with people like Suresh Tanwar, and help them fulfill their entrepreneurial dreams. Capital Float has been serving SMEs for over 3 years, providing affordable loans, anytime, anywhere, in a manner that is customized to an SME’s business needs.
Oct 24, 2018