An invoice-backed securitisation transaction enables participation of financiers with a larger risk appetite to cater to cash-starved MSMEs, says Nirav Choksi of Credable
cxoworldwide – Nirav Choksi, Co-Founder and CEO, CredAble
For years, India’s invoice financing business, which accounts for almost INR 8 lakh crore, was the domain of traditional financial institutions like banks and NBFCs. But with the advent of technology, fintech companies including Indifi Technologies, CredAble and Drip Capital forayed into this business.
These tech-led organizations have several advantages over their traditional counterparts. They are more agile, can customize products and implement technology into their solutions more easily. Moreover, they have faster turnaround times than the incumbents.
Streamlining Payment Processes
Fintechs leverage their technology capability to come up with scalable programs that can run in tandem with banks as partners. A case in point is CredAble’s invoice backed securitisation transaction.
This Special Purpose Vehicle is the first multi-originator, listed vehicle for receivables with a finite tenor, on a revolving basis. It permits multiple vendors to sell their receivables to a securitization trust for a finite period.
The securitization trust structure expands the universe of potential financiers to MSMEs. Most traditional programs are financed by banks or NBFCs, which often do not have credit comfort on long-tail suppliers. The trust enables participation of financiers with a larger risk appetite that can cater to cash-starved MSMEs.
Further, the pooling of receivables of vendors to a large anchor ensures that more MSME vendors are brought into the fold. The transaction can potentially be structured as an off-balance sheet transaction for the anchor as well, enabling a scalable solution across the entire vendor base.
The securitization trust is a short-term asset, which minimizes risk for large investors. Investors in this trust include UHNIs, FPIs and other capital market investors. In fact, the trust is open to any investor looking for a short term, credit-worthy asset (the listed vehicle has received the highest short-term credit rating of A1+).
Technology is leveraged to ensure that performance risk is eliminated. Delivery of goods/execution of service is monitored and tracked in real-time, with Goods Acceptance Notices (GANs) and Proof of Delivery (PODs) issued by the anchors validating execution and providing the basis for funding. Only approved invoices from anchors are uploaded onto the platform, eliminating scope for trade disputes arising from these transactions.
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