StartupTalky

Tag: Factoring

  • Revolutionizing Trade Finance: Roshan Shah’s VoloFin Takes the Lead in Fintech Factoring Solutions

    StartupTalky presents Recap’23, a series of in-depth interviews where we engage with founders and industry leaders to explore their growth in 2023 and their predictions for the future.

    The fintech industry, a dynamic blend of finance and technology, is revolutionizing traditional banking and financial services. Digital payments, blockchain, and robo-advisors are reshaping how we manage money. Startups in this sector focus on providing user-friendly interfaces, efficient transactions, and personalized financial solutions. The industry’s rapid growth is fueled by innovations like peer-to-peer lending, contactless payments, and mobile banking.

    India’s fintech sector is set for substantial growth, with a projected $1.3 trillion Total Addressable Market by 2025. By 2030, Assets Under Management and Revenue are expected to reach $1 trillion and $200 billion, respectively. The payments landscape aims for impressive figures, targeting a transaction volume of $100 trillion and $50 billion in revenue by 2030.

    In a recent Recap’23 interview, we at StartupTalky had the privilege of connecting with Roshan Shah, Co-founder and MD of VoloFin. We explored how VoloFin’s innovation is revolutionizing the fintech industry by analyzing its development, hurdles, insights, and future strategies.

    StartupTalky: What service does VoloFin provide? What was the motivation/vision with which you started?

    Roshan Shah: We are an industry-first comprehensive Fintech platform, providing end-to-end solutions in the domains of factoring and supply chain financing. Traditionally, this business was done by banks. Even today, they continue to work but provide services only to large clients. Moreover, the cost of compliance and acquisition is extremely high for the banks. This has opened up opportunities for FinTechs to step into the picture. Some Fintech companies are operating in the lending business and are acting as a substitute for banks by providing financing to borrowers. However, at VoloFin, we are uniquely positioned as both a lender and a platform where even banks can participate in the factoring business, and we strive to provide complete end-to-end solutions. 

    We started with a clear motivation to support the platform’s growth by providing the business with much-needed trade finance, which otherwise is a struggle for most of the organizations. Our idea of creating an end-to-end platform was to provide borrowers with quick and easy access to trade finance and at the same time allow banks to participate and grow their business. Our in-house proprietary tech platform is the core foundation of our platform, empowering us to play the role of both a lender and a platform, facilitating the banks to partner with us, and offering factoring as a ready solution. We offer factoring solutions delivered through a next-gen platform that digitally manages customer onboarding, KYC, credit, compliance, documentation, buyer approvals, transaction handling, disbursement, monitoring, collection, and credit insurance wrap. The lending frameworks are customized based on the lender’s credit guidelines and focus.

    We have already onboarded various lenders on our platform, including banks and funds and are in the process of onboarding other banks, which will benefit significantly from partnering with us than doing it themselves. They will benefit in terms of cost, effort, efficiency, TAT, and having a solid credit framework provided by us. 

    Our endeavour is to revolutionize lending across industries, from SMEs to large corporates. We further intend to spread awareness about factoring through different initiatives. We are also aiming to facilitate easy access to capital with a seamless blend of expertise and technology. We envision emerging as the most reliable, trusted, and largest Fintech for borrowers and banks in the times to come. 

    StartupTalky: What new services have been added in the past year? What is/are the USP/s of VoloFin?

    Roshan Shah: We are the industry’s first comprehensive invoice and supply chain financing platform, providing end-to-end solutions ranging from origination and collection to credit protection with insurance to platform lenders. Additionally, we provide an array of services for our clients (suppliers) and lenders, whether it is protecting them against buyer non-payment risk, providing them with collateral-free financing, and best-in-class in-house proprietary tech platform that offers full-stack supply chain solutions to lenders and banks; or ensuring quick supplier KYC and compliance through extensive integration, ability to underwrite buyers globally, and providing framework-based lending models with banks. 

    We provide fast and easy access to funds, as well as non-recourse and collateral-free financing to our clients. We take the buyer default risk upon ourselves and provide funding to suppliers over and above their existing banking limits. This way, they are relieved from the payment-related hassle and can grow their business, take more orders, and increase their production capacity. 

    Why do banks partner with VoloFin?
    Business Model – Unlike any other platform providing end-to-end solutions ✅
    Credit Protection – SandP ‘A’ and above global credit insurer ✅
    Best-in-class tech platform ✅
    Flexible fund deployment structure/framework ✅
    Proven with other banks onboard ✅
    Experienced and strong team ✅
    High origination capabilities ✅
    Quick KYC, onboarding, and underwriting (supplier as well as buyer) ✅

    Upwards’ Abhishek Soni on Fintech Triumphs and Future Strategies
    Discover how Upwards, led by Abhishek Soni, navigates the world of fintech, discussing achievements, challenges, and future strategies in this insightful conversation.
    StartupTalkyMuskaan Kapoor

    Roshan Shah: Today, the market is highly competitive, and staying abreast with the latest industry trends and developments is critical to success. Keeping a tab on the recent government regulatory policies to adapt business as per the ongoing changes is the key to scaling the business. Additionally, monitoring the emerging technologies, products, or services in the industry keeps us on the right track. Actively participating in industry events and conferences is also essential, as they provide networking opportunities and insights about the latest emerging trends and technology. 

    Staying in touch with industry peers and indulging in meaningful conversations with them enables us to understand the market better and build strategies for business growth. Moreover, a strong network of our channel/strategic partners keeps us abreast with market and industry updates as well. Staying connected with our clients also gives us good insights into industry developments.

    StartupTalky: What were the most significant challenges VoloFin faced in the past year, and how did you overcome them?

    Roshan Shah: In the past year, I feel the increase in the interest rates has posed a challenge to us in maintaining the rates we offer to the clients. While it was not easy, we focused on onboarding more lenders with lower costs of capital to ensure we could service our clients better without having them face the direct impact of increased rates. We sought an opportunity in this challenge, and it motivated us to strive for better client solutions, which was and is well appreciated by them as we stood by them in times they needed us most.

    StartupTalky: What are the different strategies you use for marketing? Tell us about any growth hack that you pulled off.

    Roshan Shah: In today’s social media-driven world, leveraging social networking platforms is a key component of the new-age marketing strategies. Hence, we also use the channels of content marketing and email marketing to reach our target audiences effectively. Additionally, knowledge sharing through emails and brochures with our existing clients and prospects helps build strong connections with them. We also try to participate in various industry events and seminars, and this strategy gives us visibility and helps us establish a strong brand reputation in the market. 

    StartupTalky: What opportunities do you see for future growth in the fintech industry in India and the world? What kind of difference in market behavior have you seen between India and the world?

    Roshan Shah: The Fintech industry in India has evolved and brought the potential of banking to the non-banking or under-banked population as well. The Digital India initiative with the government’s support, has changed the face of India on the global front. It provides easy financial facilities and services, along with growth opportunities. 

    The inclusion of mobile wallets, digital payment gateways, blockchain, and platform-based transactions has opened avenues for emerging and established Fintech companies. Market behavior has transformed with mobile wallets and UPI-based payment gateways taking center stage in the financial landscape. This has pushed Fintech companies to provide financial solutions and easy credit line services to SMEs, MSMEs, and individual consumers. If we draw a comparison, the Indian government supports Fintech companies with a more stable and mature set of regulations than the other markets. 

    We are witnessing increased client awareness in our Industry in India. The acceptance of companies using factoring is growing significantly. The companies are now using the product to their advantage, given it is quick, easy, collateral-free, and is an additional source of trade finance. Factoring is a big industry in most developed economies, but now the tech-driven trade finance FinTechs are gaining more traction in those markets.

    Fintech Industry in India | History | Growth | Future
    With the development of Fintech industry in India, the whole business has experienced a huge revolution. Read about growth of fintech in India.
    StartupTalkyDevashish Shrivastava

    StartupTalky: What lessons did your team learn in the past year, and how will these inform your future plans and strategies?

    Roshan Shah: We have a very strong and experienced in-house team that is well-informed and updated with industry trends, future expectations, etc. The real learning as such would be to continue to keep our focus on the clients and be solution-oriented, as not always the same product applies to all.

    StartupTalky: How do you plan to expand the customers, service offerings, and team base in the future?

    Roshan Shah: We have a robust in-house origination team, which we are continuing to expand. We have a mapped future talent pool base that we have planned to onboard in the coming months. 

    We are already offering additional solutions to clients with our trade expertise, whereby certain transactions are trade-supported if not financed directly, like CAD payment terms, etc. We will be making a formal announcement of these solutions later in the year while we continue to execute some transactions currently.

    StartupTalky: One tip that you would like to share with another service company founder?

    Roshan Shah: Building a strong rapport with your stakeholders is crucial for your success. And to establish meaningful, long-lasting relationships, trust and transparency are the most important factors.

    StartupTalky extends its gratitude to Mr. Roshan Shah for dedicating his valuable time and generously sharing his insights with all of us.

    Explore more Recap’23 Interviews here.

  • Alternative Financing Options for SMEs in 2023

    Small and medium enterprises (SMEs) are perceived as the foundation of all economies. India, a nation of small businesses, is home to more than 64 million SMEs, collectively contributing about 30% of the country’s GDP. However, a lack of financial resources has been a pertinent hindrance to the constant and positive growth of these SMEs. The lack of traditional assets as collateral for loans from conventional financial institutions has been a major roadblock to securing funds. Hence, came the concept of alternative financing.

    This article discusses different alternative finance options available for SMEs so that securing funds does not pose a hindrance to acquiring their working capital and sustainable development.

    The following are the alternative finance options available to Indian SMEs in 2023:

    Securitized Debt
    Crowdfunding
    Factoring
    Supply Chain Financing
    Warehouse Receipts
    Participating Loans
    Purchase Order Finance

    Securitized Debt

    Securitized debt refers to a financial arrangement where an entity, often a bank, also referred to as the originator, provides loans to a group of borrowers, usually small and medium-sized enterprises (SMEs). These loans are then combined into a package or portfolio, which is sold to investors in the capital market through the issuance of notes. This entire process is facilitated by a Special Purpose Vehicle (SPV), which is a separate legal entity established specifically for this purpose and is backed by the loan portfolio. These asset-backed notes are evaluated and rated by credit rating agencies and are made available for purchase by capital market investors. Additionally, it is also to be noted that the originator bank may choose to retain a portion of these notes.

    Crowdfunding

    Crowdfunding is a form of external funding from a large audience where everyone contributes a small amount of the funding requested. Instead of securing funds from a small group of specialized investors, this method allows small borrowers to raise funds who are unable to do so through conventional means due to credit scores and higher interest rates. It is a web-based method to seek substantially smaller funds through social platforms to fund new ventures. Crowdfunding relies heavily on social media penetration, and India, with its high number of Facebook users, is well-positioned for this financing method.

    According to the World Bank report titled ‘Crowdfunding’s Potential for the Developing World,’ Facebook usage could prove to be a useful tool because in crowdfunding the “single most predictive factor for the rate of emergence is social media penetration.”

    Your Guide to Understanding Crowdfunding

    Factoring

    Factoring is a financial arrangement that provides short-term financing to businesses, especially SMEs, by allowing them to sell their accounts receivable (invoices) to a specialized institution called a “factor” at a discount. This provides the SMEs with working capital financing. The primary benefit of factoring is that it provides immediate money to the seller to finance the business. Factors buy the right to accept payments against the seller’s receivables and release 80-90% of the invoice value to the seller. A CRISIL study on 5,000 SMEs reveals that SMEs can increase their profit by at least 15% if they receive time payments from large corporations. It would facilitate SMEs to reduce interest costs, improve profitability, and have a positive impact on the long-term health and sustainability of India’s SME sector. Another major advantage it provides is that the factored receivables are removed from the bankruptcy estate of the seller and become the property of the factor.

    2023 India Digital SME Credit Report: Key Insights
    The India Digital SME Credit Report 2023 indicates a potential $220 billion credit deficit that poses a major roadblock for the Indian MSMEs to secure financing.
    Sayantan MondalStartupTalky

    Supply Chain Financing

    Supply chain financing is quite similar to factor. Here the supplier gets advanced payment on the outstanding invoices from a third-party funder for a small fee. But the difference is that here the financing solution is being initiated by the buyer where the buyer agrees to pay an invoice early for a discount. The benefit of the buyer here is the discount on the invoice price, whereas, the benefit of the supplier is early payment, typically at a discounted rate less than factoring. Supply chain finance can be made possible at any point of sale, purchase, production, and at the point of delivery as well.

    Warehouse Receipts

    In this setup, commodity producers deposit their commodities at a warehouse facility known for its secure and trusted storage practices. The warehouse issues a receipt that certifies its possession of a particular quantity of a commodity that adheres to specific standards. The deposit is then used as collateral to the depositor to secure loans from lending institutions. The lender places a lien on the stored commodity, preventing its sale until the loan is repaid. SMEs often face challenges in providing conventional collaterals, such as real estate or assets, to secure loans from banks and financial institutions. This mechanism reduces risks for the lenders and serves as a viable option for SMEs to secure credit for their working capital.

    Participating Loans

    Participating loans are a type of loan agreement where the interest or repayment to the lender is not fixed but is instead dependent on the financial performance of the debtor firm or the borrower. The remuneration or returns to the lender can be tied to various factors such as sales or turnover, profits, and share price. The lender’s returns may increase or decrease based on the borrower’s sales or revenue. If the company’s sales go up and generate more profit, the lender may receive higher returns.

    However, participating loans do not share in the losses incurred by the borrower. If the debtor firm faces financial losses or difficulties, the lender does not bear the burden of those losses. The lender’s returns are contingent on positive financial performance but do not involve assuming any of the financial risks.

    Also, if the debtor firm goes bankrupt or undergoes liquidation, the providers of participating loans are treated similarly to other loan creditors. They receive a share of the proceeds from the liquidation process, but this distribution is not influenced by the borrower’s financial performance at that point. In essence, during bankruptcy, participating loan providers become regular creditors and do not have any special privileges based on the loan’s contingent nature.

    Purchase Order Finance

    Purchase Order Finance (POF) allows a supplier to secure funds during the production or manufacturing stage. It is designed to address the working capital needs of SMEs when they have received a confirmed purchase order from one or more customers but lack the necessary funds to fulfill the order. The SMEs receive a verified purchase order from the buyer and subsequently estimate the cost required for the production and delivery of the product, which includes labor, raw materials, packaging, shipping, and insurance. The purchasing order is submitted to the financer, and following the approval of the loan, the approved costs are typically paid directly to the suppliers. The loan supports the SMEs in preparing final goods for shipment to the buyers as part of working capital finance.

    FAQs

    What are the alternative finance options available to Indian SMEs?

    Following are the alternative finance options available to Indian SMEs:

    • Securitized Debt
    • Crowdfunding
    • Factoring
    • Supply Chain Financing
    • Warehouse Receipts
    • Participating Loans
    • Purchase Order Finance

    What is Securitized Debt?

    Securitized debt refers to a financial arrangement where an entity, often a bank, also referred to as the originator, provides loans to a group of borrowers, usually small and medium-sized enterprises (SMEs).

    What is Supply Chain Financing?

    In Supply Chain Fiancing the supplier gets advanced payment on the outstanding invoices from a third-party funder for a small fee. Supply chain finance can be made possible at any point of sale, purchase, production, and at the point of delivery as well.