The Digital SME
If you’ve been reading the papers over the last year, you must have come across the words ‘digital’ and ‘SME’ on almost a daily basis. From the the ‘Digital India’ initiative by the government to cut red-tape, bureaucracy and dare I say even corruption, to the KPMG-Snapdeal report on how going digital (or selling online) has helped SMEs increase their turnover and profitability, there’s a lot of excitement in India about SMEs going digital.
Over the past few months I’ve been asking myself a couple of questions:
- Do SMEs really understand what “going digital” means?
- Do SMEs know what are the benefits of going digital?
Going Digital: What does this really mean?
Depending on which report you read, SMEs can sell products online for prices between ₹1500- ₹3000. So does this mean the SME has now gone digital? I think not. This just means the SME now sells its products online and therefore has a greater reach, which to be honest is a great achievement in itself, but the SME still has to adopt technology internally for it to go truly digital. A modern digital SME is powered by solutions that are spread across multiple functions: From Customer Acquisition to Risk Management to Operational Efficiency to Enabling/Empowering Workforce. Adopting new age technological solutions internally will allow an SME to achieve scale and more importantly operational efficiency at a lower cost. Some of the largest start-ups have managed to scale globally because they have successfully done this. Firms like Practo, AirBnB and Uber for example, have successfully incorporated technology in their internal processes which has allowed them to grow globally at a rapid pace.
The rapid growth of technology has given SMEs:
- Access to Enabling Infrastructure through increasing device penetration and an enhancement in internet connectivity.
- Availability of economically feasible enterprise solutions and services along with a thriving mobile applications (apps) ecosystem.
- Customers who have adopted technology and ecosystems that are allowing this adoption through key initiatives.
Going Digital: Key Benefits
4 areas are likely to be directly benefited if SMEs adopt technology:
A) Customer Acquisition
Technology can be leveraged to access clients in distant geographies and create a greater visibility among target segments. Personalisation in engagement and customer relationships, for both new and existing clients, can be managed in a more efficient manner. The immense data that is captured using technology will allow SMEs to develop customer intelligence which will then allow them to optimize sales and engage with various ecosystems to open new sales channels.
B) Operational Efficiency
Automation and streamlining of core processes will allow the SME to become more efficient, reduce wastage and utilize resources in an optimal manner. This will allow them to enhance the customer experience and optimize their supply chain management through better visibility and control over logistics. With efficient processes in place, SMEs will be able to choose suitable potential partnerships that will fit their internal processes and not cause any disruption,
C) Workforce Enablement
Technology can go a long way in identifying workforce shortfall and identifying key areas of skill development needed within the organisation. A number of digital tools are now available for employees to collaborate and for the SME to monitor employee productivity. Web based solutions for skill development and training for employees will help the SME ensure that employees are empowered with new tools and concepts on a regular basis
D) Risk Management
With use of technology comes the responsibility to protect the information the firm has gathered. Data Security becomes paramount for customer/employee data as well as the company’s financial information. Digital solutions for preventing such leaks would strengthen the organisation. Technology can also be used to safeguard and monitor physical assets through the use of surveillance, asset control and tracking solutions.
There has never been a better time for SMEs in India to “go digital” and leverage technology to incorporate financially feasible solutions.
|Akshay joined Capital Float after completing MBA from Judge Business School, University of Cambridge. Following 6 years with Deutsche Bank across various functions and geographies, he opened a French Italian bistro in India. At Deutsche Bank, Akshay worked across risk management, structuring derivative products, trading Indian government bonds and structuring and executing assets financing trades. Akshay manages Capital Markets at Capital Float.|
Information availability and decision-making is becoming increasingly dynamic in nature. This constant state of change has impacted customer expectations and many organizations are grappling to keep up. Amidst this chaos, a few companies have found opportunities and strategies to leverage this change.
Most companies which are successful in understanding and fulfilling new-age customers’ expectations have exponentially grown and created very strong value propositions and brands in the minds of the customers. Some proponents of change defining the business ecosystem today are big data, cloud computing, mobile and content. Digital Marketing as a science, art or technique sits right in-between all of these factors. Is digital marketing complex and difficult to understand? Is it a type of marketing that only large companies with large budgets can afford to execute? Read on to find out.
In many ways digital marketing has democratized business reach to consumers. It has presented a level playing field for small and large brands alike. This is one platform where intellect and ingenuity trumps everything else. Applications of digital marketing are aplenty - from exploring new markets to growing a stronger brand in existing markets, all in a budget that you can decide and control in real-time.
In this day and age, the question isn’t whether you should do digital marketing, but rather, the pertinent questions are “how” and “where to start from”. Following are 5 simple things small businesses can implement to mobilize their digital marketing:
1. Website for E-Commence and Product Catalog A website is just like a salesperson. It may need attention and hand-holding early on, but over a period of time, it becomes independent, yielding a steady stream of income. Do bear the following aspects in mind while building your website: • Does your website have all the information that you would like your customers to know? • Does your website provide your contact details in case the customer wants to place orders or make enquiries? • Is it easy for the customers to navigate and find information about your brand and products? • Is your website persuading customers to take specific actions? • Is it easy to update information on your website? Once you have all the content ready for your website, you can use one of the many website builders to set-up the framework. Most of these builders offer plenty of templates and customization options. In case you plan to sell your products online, some of the payment gateway companies can offer to set up the infrastructure for free. Sounds complicated? It’s not. You needn’t be a software geek to implement a fully-functional website.
2. Create local awareness about your business It is quite possible that some of your prospective customers, even though located very close to you, may have never heard about you. Even if they have heard of you, they will resort to searching information about you on the internet. Facebook and Google provide you with options to create local awareness and an identity on the internet. You can even place your business on Google maps to help customers locate you. All of this at little or no cost.
3. Catalyze word of mouth with referral schemes Very few marketing campaigns can outshout the voice of a customer operating as a brand ambassador. While social media can intensify word of mouth, it takes experimentation and genius to go viral. Win-win referral schemes help you achieve similar results with greater certainty. There are plenty of plug and play tools which can help set-up referral schemes, leverage your customer’s social network and give your brand a fair chance of going viral. You can track and manage these schemes on the go. Much like your website, these tools are very easy to implement.
4. Advertise on Digital Media It would be wise to advertise online if a good portion of your customers reside on the internet. Digital advertising unlike conventional advertising is highly targeted and permits small spends. You can choose from promoting your brand in existing markets to exploring new opportunities in new locations, all at the click of a button. And the good news is, all major online advertising platforms provide advertisers with account managers to help them set-up and run marketing campaigns. If you are lucky, you may even find free coupons to run your campaigns.
5. Email-Marketing to connect with your customers Emails are a very convenient and effective way of communicating to your customers. You can use emails to inform your customers about new products, features and offers. Free guides and manuals can help your customers use your product better.
E-mail provides for two-way communication; feedback enables you to know if your email was received with a smile or a frown.
Much like this blog, you will find plenty of guides, free tools and services that can help you execute digital marketing. It may be tempting to do all of the above or possibly more to join the digital business bandwagon, but begin by evaluating your options and strategizing accordingly. If executed well, one or two targeted options are likely to provide better results rather than a scatter-gun approach.
Hope these points demystified digital marketing for you. So go on, roll up your sleeves and get ready to build a business without boundaries.
Samarth is a marketing professional with expertise in Digital Marketing. Lead generation, customer engagement & retention, brand building and people development are some of his areas of interest. During his leisure he likes hanging out with friends & family, riding his bike to nearby destinations (sometimes even without a destination), watching movies and reading.
Samarth is a Marketing Manager at Capital Float.
There are several tools in the market that people could use to communicate, such as Email, Skype, Whatsapp, Messenger, HipChat, Slack, etc. How do you pick the right communication tool for your organization? And does it even matter which one you choose? One tool which is considered as the latest and greatest among tech startups is Slack: a chat tool designed for companies. We decided to give Slack a shot, and started using it late last year at Capital Float.
There isn’t one clear solution to choosing a chat engine for office communication, but we recommend companies give their communication channels some serious thought. Slack has features which make it distinctive from other popular tools like Skype and Whatsapp - we won’t go into that here, but do read up for more context. We’ve definitely witnessed a positive impact from using Slack.
Here are a few things a great chat tool like Slack can help you do:
1) Get things done faster
Chat enables real-time communication, and hence collaboration. Discussions can happen in real-time, rather than asynchronously over email threads. Scheduling meeting times becomes much simpler. Email communication reduces, freeing up productive time. Slack fits better into workflows: the mobile app enables people to respond on the go and great keyboard shortcuts on desktop app enable rapid usage. This leads to quicker action being taken resulting in faster decision-making.
2) Organize your information
Conversations on Slack become an archive of internal information. You can create a different “channel” for each group or topical discussion. Channels help keep discussions focused. Slack’s search feature makes it easy to find data across the medium, either by channel or by person. Files shared are compiled into a list. You can ‘star’ things for later and you can pin messages in conversations.
3) Enable people to focus on the right things at the right time
Having a separate company chat tool enables people to keep work and personal communication separate. Work related messages won’t get lost, and people will be less tempted to start replying to personal communication. On the flip side, people can choose when it’s important to tune in or out. Notifications can be customized by channel on Slack and also by time of day. People can schedule notifications to turn off in the evenings, but be notified on an urgent basis if needed. Essentially, people can focus on what they’re doing while at work, but also be engaged and plugged-in when they are with family and friends.
4) Have more control over user access
It is important to keep control of who can access company data - even conversations. You can create private channels which limited users can see, and also control what specific users can access (e.g. a consultant could be made a restricted user). With Slack, you can enable Google App login or other single sign-on (SSO) mechanisms, which has a couple of benefits. Firstly, people can add themselves without creating new accounts, and no one has to ‘add’ contacts. Secondly, it ensures your chat user list is synced to your user management. When someone leaves your company you just have to remove them in one place to ensure they no longer have access to company info.
5) Innovate, connect dots in your business, and have fun
Being a cutting-edge tech company, Slack constantly innovates and also enables innovation. Slack has integrated with many applications, enabling you to play around with a myriad of other tools your business may use. Do you use Zendesk? You could create a channel which gets notifications when a ticket is created. How about Google Hangouts? You could spin up a new Hangout link for a channel. Slack also provides API access which can allow you to create workflows even with your internal systems. Slack’s funky interface and other cool in-built features can prove useful (e.g. a bot that can remind you of stuff) or simply give you inspiration.
While we’re excited about Slack, we realize it isn’t a perfect solution. A few things to keep in mind: Slack may not quite work as well for companies with primarily external-facing communication, since it’s built for intra company conversations. Even if Slack does work for your organization, there are still kinks in the machinery with pertinent features missing from the module. Video/ voice calling can be initiated from Slack (e.g. you can create links for Google Hangouts), but this feature isn’t built into the system. And while Slack has a high uptime and reliable message delivery, for companies in India, Slack isn’t quite optimized for our existing infrastructure. When used over a flaky network, Slack can perform inconsistently while Whatsapp functions adequately.
If you do decide to go down the path of trying something like Slack out for your company (which you should!), be prepared to work initially on getting people to use it. Here are a few tactical ideas to help you get your colleagues on board: have a few champions for the product. Go for grassroots growth, not taking a top-down approach. Create shameless plugs via email with simple instructions. Create channels which people really need to be a part of, otherwise they’re missing out. Be patient, and be positive! You’ll soon see desired results!
Sakshi leads the investor facing product at Capital Float. Before that, she did product at KPCB backed Turo, a p2p car rental marketplace in SF. Her experience is in a mix of tech, design thinking, and strategy. She enjoys building delightful solutions to problems in traditional industries. At Stanford, she built her core foundation in CS, design, and economics. Beyond building products, she tries to sing and simultaneously play the piano, runs in Cubbon Park, and rolls out fresh pasta.
Sakshi is the Senior Product Manager at Capital Float.
Written by BW CIOWorld
Capital Float is a digital platform that provides capital finance to SMEs in India. They offer short-term loans that can be used to purchase inventory, service new orders or optimize cash cycles. Vaibhav Singh, Associate Vice-President, Business Development, Capital Float, in a chat with BW CIOWorld shares some insights on e-commerce in India.
The e-commerce boom has birthed young entrepreneurs with limited transactional history that directly impacts their accessibility to credit. Capital Float has identified this opportunity and has launched new debt products to serve this rapidly growing segment. Most banks continue to implement underwriting models on online sellers which were originally designed to underwrite debt of offline sellers, argues Vaibhav.
“At Capital Float, we have built our underwriting model bottom-up based on evolving data and metrics to identify creditworthiness of online sellers. The approach is tailored to be more relevant to online businesses and offers more accurate results, says Vaibhav. Explosive growth in the e-commerce segment has overwhelmed traditional banking institutions and companies like us are able to share the burden of offering credit to unserved SMEs in the market.
E-Commerce platforms are attempting to standardize processes while increasing scope and scalability of existing sellers. This effort is likely to cause a churn in the seller e-community creating a metaphoric sieve through which sellers will be filtered. Consequently, the best performers will experience geometric growth, increasing competition between sellers in the space.
Building individual brand identity would be a challenge The nature of the business fosters competition on the basis of pricing. In the attempt to offer best prices, sellers would be challenged to build their individual brand identity. Accessibility to credit through traditional channels will continue to remain a hurdle for e-commerce sellers in the foreseeable future, as conventional sources of credit begin to adapt to the dynamic capital environment. The fiery growth in the e-commerce segment can only be sustained if companies like us are able to share the burden of offering credit to unserved SMEs and ecommerce sellers in the market.
There will be a slow change in the mindset especially in a hitherto human-intensive space like lending. People have to become comfortable with trusting machines to do everything a man can do; stepping in only where expressly human traits of experience and intuition are needed, even if this means that at volumes approaching statistical significance, we let a few true-positives slip through in the interest of overall productivity. It’s about slowly giving up control and trusting technology to pick up the slack.
Algorithms and big data will drive eCommerce growth Capital Float has used technology innovatively to ensure that seller in the ecommerce domain have access to collateral free working capital loans and enable business growth in a simple and efficient manner. Leveraging analytics, algorithms, big data and other disruptive technology trends to make lending decisions quickly based on verifiable data thereby ensuring efficient and fast turn-around time is the future. Technology has also enabled Capital Float to expand business faster and reach out and support the SME and seller community across India. The acceptance of new forms of technology would only fast forward the growth of facilities needed to continue the growth of ecommerce.
- See more at: http://bwcio.com/accelerating-the-growth-of-ecommerce-in-india/#sthash.zDdwY1Q3.dpuf
News piece sourced from BW CIO World. Read the full piece here
There has probably never been a better time to start a business in India. Multiple positive developments in the recent past have laid the foundation for a thriving entrepreneurial ecosystem for years to come. Some Governmental initiatives such as “Make in India”, “Startup India” etc., have indicated that at the highest level of policy-making, there is now a strong desire to support new businesses. Increasing digitization and improving infrastructure means that even the youngest of businesses can now reach out to millions of potential customers. The brightest minds in the country are now being drawn away from previously coveted corporate jobs and are opening up to the challenge of executing an indigenous endeavour from ground-up. These are exciting times.
These young businesses can bring significant value to the Indian economy. At their helm are smart, passionate entrepreneurs with products or services which cater to tangible demands in the market. With the right support and nurturing, many of these ventures can grow into successful businesses. However, far too often, we see many of these budding entrepreneurs failing to realize their true potential. While there can be many reasons why a young business fails to scale up, research globally has identified a clear obstacle – lack of appropriate and timely credit.
The problem of the “Missing Middle” in developing economies is well documented. Such economies have a large number of micro-firms, some large firms but very few medium-sized firms. The absence or the paucity of medium-sized enterprises isn’t because these businesses lack the potential to be profitable, but because access to finance is traditionally a cumbersome process. In India, less than 1/4th of the financing demand of SMEs is met by formal institutional supply. Small businesses fail to benefit from the leverage which debt financing provides and is essential for propelling growth. As a consequence, SMEs contribute to only 8% of the Indian GDP – a stark contrast with the 40%+ contribution made by small businesses in developed economies.
This is not to say that the financing needs of SMEs are being completely ignored. For more than two decades lending to small businesses has been a priority agenda item for policy makers and regulatory bodies. A host of initiatives have been launched but on-ground progress has been slow. A key bottleneck is that these small-medium sized businesses are unable to furnish adequate credit history.
In a country like India, with a thriving informal finance ecosystem, most small businesses do not build credit records in their initial days as they can access finance through informal lending channels. As the size of their operation increases, so does their financial need. At this point, they are unable to turn to formal means of credit supply due to the lack of universally recognized documentation. At this stage, their growth is stunted as the informal market is unable to provide required financing at reasonable rates. It is a perfect Catch 22 scenario – to get credit you need to have prior history but to have prior history you need to secure credit!
Building credit history with a bureau, e.g. CIBIL, takes time. Start small, be patient and build it over time. In India we now have personal as well as business credit scores available separately, though the former continues to be the more dominant decision input to most underwriting models. The credit worthiness of the promoter of a small business is crucial since the fortunes of the business are so closely entwined with his personal credit standing. It is thus vital to establish and grow your personal credit score. Start with small loans and service them in a timely fashion. If you are unable to get unsecured financing (e.g. a credit card), you can potentially start with a secured loan (e.g. auto loan) or a loan which is backed by a guarantor. Do not over-leverage your self – having multiple loans outstanding and/or high utilization on your existing limits negatively affect your score. Avoid such credit behaviour. Most of these points apply to business credit scores as well – start small and diligently service re-payments.
The entrepreneurial journey can be a deeply rewarding one. Focus on building your credit history along the way to help achieve your goals.
Vaibhav has over seven years of experience in the financial services industry across analytics, sales and trading. He has worked across major financial centres in Asia managing equity portfolios of large institutional investors across the region. In his last role prior to joining CF, he was a member of the Program Trading desk at Deutsche Bank’s Sydney office. He holds a Bachelor’s and Master’s degree from IIT Kharagpur in Electronics Engineering and is a CFA Charterholder.
Vaibhav heads Business Development at Capital Float.
Like most college friends, Ankit, Murthy and Kumanan lost touch with each other soon after graduating. Unlike most friends who lose touch with each other, they ran into each other while vacationing in the same resort at the same time to celebrate new years’ eve. While their career paths had diverged 15 years out of college, they were soon reminiscing the good old days with an equally old bottle of scotch. After rewinding and replaying the past a few times, the conversation caught up with time and they started talking about work.
After several years of working in a traditional bank, Ankit got bored and joined a new age digital lending company as the head of credit. Kumanan worked at large garment manufacturing units in India, Bangladesh and China. Watching the industry disappear around him, he sensed opportunity and had recently started his own T-shirt design and manufacturing company where he was riding the e-commerce boom and sold most of his inventory online. He had ambitions of starting his own brand soon. Murthy had joined his father’s business and expanded a single department store into a chain across the entire city. He also supplied snacks, beverages, toiletries, cleaning equipment to the largest software company of his city and they were constantly demanding that he supply paper, ink and most other consumables as they grew and expanded.
With the scotch taking care of any and all inhibitions, Murthy and Kumanan’s frustrations surfaced and they started talking about how they love their work, the sense of independence, the sense of control over their destiny but how they absolutely hated dealing with lenders and banks. In their mind, Ankit personified this opaque, insensitive, slow lender and they wanted him to explain why all their past loan and credit card applications had been declined. The barrage of questions targeted at Ankit reached a point where Kumanan even wanted Ankit to explain why his voter ID had the wrong address! Ankit smiled and surprised them by saying he shared their frustration of being unable to provide the right loan to the right person at the right time in his old bank and that he also moved to a new age digital company with the intent to redefine lending in India.
Ankit then asked Kumanan and Murthy to explain how they went about getting a loan and got the answer he expected. Like most business owners, they did not have the time to deal with multiple banks and they used an agent to help them get loans. While they did not particularly like their agents, they did send a guy over to their office to fill forms, collect documents, organize bank discussions and get them their funding without them having to figure out every bank, product and process. In addition, Murthy and Kumanan both had multiple suppliers who they had worked out individual credit terms with. They also admitted that whenever they needed urgent money or large sums that banks would not provide, they got it from local moneylenders at exorbitant terms. It was quite beyond them as to why a bank would think they cannot repay a larger loan when they were clearly taking multiple loans and successfully paying them off.
Ankit explained that traditional banks and lenders had very limited scope for loan officers to think out of the box and act beyond established policies. Banks did not have significantly different products or processes and ended up providing 2-3 year lump sum loans that were not large enough for Kumanan or Murthy. They always ended up spending time allocating money across various activities such as expansion, payroll, supplier payments, seasonal demands, online vs offline sales where payment cycles were vastly different. The advantage of Ankit’s new age company was three fold: custom products designed to address specific financial needs of businesses, high speed customer experience with minimal documentation, and low pricing due to product features that enable non-conservative underwriting. Kumanan and Murthy’s curiosity was piqued and they wanted to know more.
Ankit asked Kumanan to imagine a world in which he downloaded a mobile app, added all his suppliers and had a line of credit with standard terms available that he could use to pay any supplier any time. He could pick his repayment period and the payment goes through immediately! No need to haggle with each supplier and the credit line grew with usage and regularity of payments. Since he sold online, he also had the option of picking a tailor made e-commerce loan where repayments were mapped to the payment cycle and a transparent cash flow control mechanism ensured that many more people qualified for affordable large loans. These loans even adjusted themselves for seasonality of his business and he could request top-ups as and when he needed them. Kumanan was very impressed that these products were not restricted to his imagination but were actual products that Ankit was able to provide via his new age digital lending company.
Murthy wanted to know if there was something for folks like him who did not sell online. Ankit told him that instead of taking long term loans that may not be utilized all the time but keep accruing interest, Murthy should opt for an invoice financing loan wherein all his supplies to the large software company could be funded as and when they make a purchase from him. That way, he does not have to plan for their expansion and is confident of the right amount of money at the right time and the right rate. Murthy agreed that while this product did sound interesting, he preferred if somebody came to his office to explain the product and handle the paperwork. Ankit mentioned that his company did not have any “paperwork” since most customer information was collected digitally but he is happy to send over a person to Murthy’s office to help guide him through the product and process. Murthy then wanted to know why he could not get a larger loan and Ankit explained that lenders and banks are happy to lend when they have some visibility into the cash flow of a business. As an example, Ankit’s company had recently launched a merchant cash advance product that collected daily payments directly from the credit card machines that Murthy had in all his stores. Typically, it was a lot easier to qualify for such a loan, there was minimal documentation and there was no need to think about payment due dates!
Having given up hope of ever hitting the gym, Kumanan and Murthy were happy with their new year resolution of trying out custom financial products from new age digital companies and keeping in mind that old may not always be gold!
Tushar has deep expertise in credit, risk management, portfolio management and analytics gained during his 10-year career with HSBC and Capital One in India and the US. Most recently, he worked on a small business credit card portfolio purchase for Capital One including business development valuations, due diligence, system integration and credit policy development. Tushar graduated from IIT Madras with a B.Tech in Electrical Engineering.
Tushar heads Decision Sciences at Capital Float.
Interviewed by Kritika Prashant
Typically, choosing to finance the SMEs looking for working capital loans, is not easy. First, the SMEs have smaller ticket size. Then they expect quick service and have high operational costs associated with it. ProductNation interviewed Shashank Rijyasringa and Gaurav Hinduja who started Capital Float in early 2013, a digital finance company that serves the loan requirements of SMEs in India.
Shashank having worked with McKinsey and Bain, has a background in creating, and packaging financial instruments. Gaurav on the other hand had grown and sold his family business before they met at Stanford as classmates.
“We were looking to address financial inclusion. We observed how the fin-tech space was being disrupted in US and China, and saw the huge opportunity in India. With 48 million SMEs, second just to China, with 50 million, India needed lenders who would tailor their offering to the needs of the customers. The rate of interest by the banks was much higher than expected. Also, the loan disbursement ate up a lot of time. So this need was largely catered to by the informal sector”, says Gaurav.
Registered as an NBFC with RBI, they started with an instrument for invoice financing (building loan product against invoice of blue-chip companies). The duo gradually evolved their products to provide working capital loans for SMEs. They developed underwriting models which address the specific scenarios of the SMEs.
“There are 2 broad categories of sellers coming up on eCommerce portals. First are those who sell on platforms like Zovi and Myntra, where the sellers are also the manufacturers. Other category includes retailers who sell on sites like Snapdeal and Paytm. They generate a huge demand for loans available at short notice periods with minimum hassle. That is where we found our sweet spot”, shares Shashank.
Here are some experpts from the interview:
How did you overcome the problems of traditional lending?
SR: “Firstly, our experience came in handy. My in-depth knowldge of micro-financing, packaging and selling loan instrument meant we could build the right services. Gaurav with his experience of running a business out of India, knew how to deliver the services we wanted to build.
Secondly, we met with our customers to understand what their problems really were. To a small business owner, every hour spent off the floor is an hour wasted. We came up with innovative methods like allowing same day approvals and providing loan facility over phone and laptop. These businesses needed greater accessibility and straight-forward procedures. They wanted someone who could understand the value of their time.
Third, and definitely the most crucial point was that we adopted trial and error method. Like any startup, we didn’t know exactly how things would work. We were building our instruments in-house. So we had to fail fast and experiment quickly. With agile methodology, today, we can deliver new loan products in 2 weeks. A bank would take about an year to do the same.”
How is the policy environment evolving in India, with respect to your industry?
GH: “The Mudra banks for refinancing are a welcome move. With 950 million Aadhar numbers issued, allowing eKYC, is it much easier to issue loans. The Digital India initiative to create better internet connectivity will help us reach a much larger customer base.”
They are leveraging the Indian stack to refine their instruments and are growing with it.
How difficult is it to get payback of loans?
SR: “SMEs are the most financially aware and responsible segment, since they always manage their finances tightly. Also, our screening process mitigates high risk customers, allowing us to cater to the needs in minimum possible time frame. So that’s not much of an hassle.”
What would be the 3 lessons you have learned from your journey?
GH: “1. Perseverance – One needs to believe that the idea would work, when no one else knows if it will. It is important to stick to that optimism and keep trying to find the exact fit.
- Strong fundamentals – From the first day, the business needs to know where its money will come from. The cash flow should not be dependent on where one is, in the funding cycle.
- Rounded team – Build a great team if you want to build a great product. A strong team stands by you to make it possible.”
What would you say to the entrepreneurs starting up fresh out of college?
SR: “There is no right time to startup. Whenever you get passionate about a problem and see a large market for it, go for it. Here are my 3 tips:
- Address a big problem. If you go after a problem which is not so big, it may not be worth all the effort. India provides huge opportunities with really major problems that need to be addressed.
- Maintain discipline. Whatever you do, think big and build for the long term.
- Understand your responsibility. As you grow your team, you need to realise that families of your employees are getting dependent on you. It is essential that you take your decisions wisely.”
What are the mistakes you wish you did not make?
GH: “We were too slow in the start. We should have been aggressive, and believed in ourselves more. We thought people might not accept a technological solution. We have realized however, that technology has to lead the change in society. Invest in constantly being disruptive and you will definitely make a difference.”
News piece sourced from ProductNation. Read the full piece here.
Supply chain finance is an important but often underrated aspect of supply chain management. At its core, supply chain management is the management of the flow of material / services, data and money through a network of assets from the point of origin to the point of final consumption (and back). Natural disasters, geo-political crisis and financial crisis faced by the world over the past decade have forced companies to move away from only optimizing their supply chains to making them more resilient. For a supply chain to be truly resilient, all risks associated with the asset base managing the flow (i.e. the material & services, data and money) must be negotiated intelligently, keeping in mind that each one represents a point of failure or a point of opportunity.
Industries are habituated to ignore the significance of supply chain financing. While there has been a lot of collaboration between different constituents of supply chains, they usually center on inventory. However inventory and finance are intrinsically linked; increased players in the supply chain machinery is directly proportionate to the increased complexity in the financing of the process. This is especially true in a country like India, where the number of intermediaries, in many cases outnumbering the actual value addition points, poses a complex problem from the paradigm of supply chain finance and more importantly supply chain resiliency.
As with anything in a complex supply chain, the bulk of the power resides in a few constituents (maybe the retailer or the manufacturer depending upon the specifics of the value chain). These companies understandably look out for their own interests especially when it comes to supply chain finance. Though concepts like JIT (just in time) inventory and quick turnaround times from order-to-delivery have reduced inventory levels held drastically, most companies still hold onto the traditional 30-45-60 day of credit terms with their suppliers. This puts incredible financial stress on the supplier which in the worst case manifests in poor quality of supply. In the long run, this increases the total cost of ownership for the company, i.e. investment in more stringent QC processes, returns, disruption to the manufacturing process, supplier switching costs etc. Applying the same principles of collaborative thinking to supply chain finance will not only make the overall chain more resilient but also optimize the flows and pass on efficiencies in the long run to the end consumer.
In today’s business environment where “share holder value” is no longer a buzz word but the focus of every corporate board of directors, it might be wishful thinking to expect companies to share their margins or reduce days of credit to suppliers in the interest of collaboration. This is where a third party financial institution plays an important role. By providing liquidity to the supplier on the basis of the credit umbrella provided by the bigger company, the addition of the third party financial institution creates a win-win across all stakeholders involved. This is even more critical in the case of small and medium sized enterprises, which at this point are forced to spend only a fraction of their efforts on innovation and growth.
While some large corporates do have some form of supplier financing initiatives through tie ups with Banks and NBFCs, in most cases the coverage of the initiatives are limited (to some marquee suppliers) and in a larger amount of cases are a generic form of receivable financing based on existing credit policies of the financial institutions, which are out of sync with business realities. It is imperative for large corporates to have a supplier financing initiative for all their suppliers, especially the SMEs to manage their financial risks. In turn it is imperative for the financial institution to have a tailored product which reflects the operating realities of the industry and also the specificity of the supply chain. Collaboration of all three stakeholders, i.e. the large corporate, SME supplier and financial institution will be critical to ensuring a sustainable supply chain finance program.
We live in an interconnected world; therefore large corporates have the responsibility to ensure that their SME suppliers have access to finance, if they truly want to make their supply chains resilient.
Prashant has 11 years of experience in business strategy and operations, with specific expertise in the areas of project management, supply chain management and business process formulation , across the retail sector, United Nations system & international organizations, telecommunications & high technology, oil & gas and 3rd party logistics. He has successfully managed and delivered projects for clients based out of Europe, the USA, Africa and India.
At Capital Float, Prashant heads Business Development for Supply Chain Financing.
We want to be in 100 cities in the next 12 to 18 months: Gaurav Hinduja & Sashank Rishyasringa – Business Standard
Written by Alnoor Peermohamed
Bengaluru-based startup Capital Float, which lends to small and medium enterprises (SMEs), plans to grow its presence from 40 cities to a 100 cities in the next 12 to 18 months. While sellers on e-commerce platforms make up a large chunk of whom the company lends to, it says it will focus more on tier 2 and tier 3 businesses, which might be solely offline but have the potential to grow massively. Gaurav Hinduja and Sashank Rishyasringa, founders of Capital Float talk to Alnoor Peermohamed in the company’s plans. Edited excerpts:
The e-commerce segment is fairly new and there’s bound to be volatility. How do you think that might impact your business?
Hinduja: E-commerce merchants are the core to what we do and it’s an important vertical, but we’ve also diversified outside.
We do loans to a lot traditional SMEs — brick and mortar, manufacturing and service type of organisations because that segment is 30-40 million, whereas e-commerce is 100-200 thousand. I think almost all sellers sell on all marketplaces. And when we underwrite the business, we look at a combination of things. Sales across marketplaces, and how does that look across his offline sales as well, because a lot of sell offline. We look at a holistic view of the business before we actually decide to give the person a loan.
Data on sellers is harder to come by in the offline world. How are you tackling that?
Rishyasringa: You’ll be surprised as to how much data is available on any business in India and that’s very much a big part of the IP we’ve built since the early days. I think what we’ve been able to do is build a lot of pipes for data sources such as Aadhaar, NSDL, and a whole host of other government and legal databases.
The borrower is also able to give us access to a lot of data that we can then use in deciding what terms and what kind of loan to give them. For example, social media is a very interesting input that we consider in our underwriting model.
On the online piece, yes there is some additional data which helps with the speed of lending. So today we give real time approvals to e-commerce sellers in 10 to 15 minutes.
What is your primary source of raising capital?
Hinduja: Like most financial institutions we obviously raise equity right, and we have raised a little over Rs 100 crore from some of the best VCs, but also we have raised debt.
What are your sort of default rates? How are you working to keep them low?
Hinduja: Ironically, a lot of the bank’s defaulters are not coming from the SME sector. They’re actually coming from large borrowers. A lot of what we do is the underwriting, through different data, and we do that to keep our credit costs, which are defaults, et cetera, really low.
Today they are very low, I’d say 80-90 per cent better than any NBFC that lends to SMEs out there. That said, it is still early days. This is a lending business at the end of the day, there are going to be defaults.
What do you think will happen when guys like Alibaba increase their focus in India? Where do you fit in?
Rishyasringa: B2B e-commerce has the potential to be far larger than B2C e-commerce in India. And we think what Alibaba has been able to achieve in China and in India with its SME base for exporters and importers is tremendous.
We are partners with Alibaba. You can infer from that, that we’re already active in the space and its part of our strategy.
How is this partnership going to work?
Hinduja: They’re going to look at us to help get more SMEs to become active Alibaba users. But at the same time a lot of their SME merchant base will require financing, whether it’s for domestic transactions, or cross border transactions. They will look at a financer that really has the speed and the agility to meet the SMEs requirements in that sense.
What are your growth plans?
Hinduja: We want to be in 100 cities in the next 12 to 18 months and obviously a lot of that growth is going to come from tier 2 and tier 3 towns. Because banks really don’t have a presence there.
While people and SMEs in the top 8-10 cities can still access a bank branch, bank branch penetration in those tier 2 tier 3 towns is almost negligible. I think that’s where we’ll see a lot of growth and through the make in India and e-commerce stuff you’ll see a lot of business growth in those cities as well.
What sort of regulatory hurdles do you see yourselves having to cross?
Rishyasringa: Actually in the financial services space I think we’ve got a very proactive regulator and what you’re seeing in these payment banks, small finance banks, e-KYC, I think these are all steps in the right direction and we obviously hope that we continue to see these steps.
News piece sourced from Business Standard. Read the full piece here.