Fintech startup Artfine helping MSMEs resolve their capital woes

Fintech startup Artfine offers end-to-end solutions in the area of supply-chain finance (SCF). The company aims to democratise corporate and MSME working capital funding by converting and distributing supply chain finance (SCF) through the issuance of debt capital market instruments (pass-through-certificates and bonds/CP), thus providing alternate high yield investment opportunities to investors. In addition, Artfine helps in improving accessibility, reduction of transaction processing time and cost and bringing transparency. Shantanu Bairagi, Co-founder of Arfine, in an interview with Bizz Buzz, says: "Artfine has assisted over 800 SMEs and we aim to expand its presence and operations in order to provide more inclusion for MSMEs and meet their working capital needs. By FY25, Artfine intends to empower 10,000 MSMEs and 100 corporate houses"

What are the offerings of Artfine? How does it provide end-to-end supply-chain finance (SCF) solutions to cash-starved MSMEs?

Artfine offers end-to-end solutions in the area of supply-chain finance (SCF). The company aims to democratise corporate and MSME working capital funding by converting and distributing supply chain finance through the issuance of debt capital market instruments (pass-through-certificates and bonds/CP), thus providing alternate high yield investment opportunities to investors. In addition, Artfine helps in improving accessibility, reduction of transaction processing time and cost and bringing transparency. From the digitisation of KYC through video KYC, Artfine makes the process shorter and improves reach to entities located in un-banked geographies. Therefore, the digitisation of invoice discounting through online platforms has made it possible for lenders to provide financing irrespective of the invoice amount.

While the group's lending arm Arth Padarth Factors and Finance, provides funding, the consultancy firm Artfine Consultancy provides services like supply chain digitization, integration with various TReDs platforms. And our online debt distribution platform Arthavista helps generate liquidity through distribution to various investor segments like HNIs, family office, MF etc.

How has the MSME supply chain finance scenario evolved over the years?

MSMEs have experienced a paradigm shift in their supply chain finance scenarios over the last decade. Earlier the only options available were traditional models of borrowing from banks/NBFCs, mostly against collateral, or informal sources such as friends and family. However, three major developments have occurred since then. The first is the proliferation of new age lenders, mostly (backed by PE/VC funds), who look at cash flow based lending backed by MSMEs' track record. Second, significant investment and innovation in technology have made this financing process easier and more cost-effective, increased transparency to avoid fraud, and so on. Third, favourable regulatory and policy tailwinds such as the implementation of TReDs, changes in factoring guidelines, and credit guarantee backed loans have prompted banks to renew their focus on the MSME supply chain business. So far so good but there is still some distance to cover, especially with respect to debt capital market participation.

What are the different avenues available for MSMEs in India to avail funds?

The sources of finance available to Indian MSMEs are as follows:

1. Banks: The cheapest and largest source of funds, but with generally strict terms and a sometimes lengthy onboarding process.

2. Large NBFCs: The second cheapest option, which is less rigid than banks, but offers fewer product options.

3. Small NBFCs/fintechs: Typically focused on a single product, so the onboarding/approval process is faster, but the pricing is not the best.

4. Alternative funds/venture debt: Not available to all MSMEs, with a focus on assisting startups backed by PE/VC funds. They are expensive, but they are willing to support working capital needed for growth.

How does debt securitization work for MSMEs?

Securitization is the process of converting assets into securities. In this process, various assets, including debt instruments, are used to back securities. Here, loans or receivables are bundled together to create financial securities, also referred to as securitized debt instruments.

Thus, MSME loans can be packaged into loan pools or offered as securitized assets to buyers looking to invest in these asset classes. Securitized debt is an alternate source of funding for MSMEs through the participation of non-traditional lenders like mutual funds, HNIs, family offices, etc.

There are six steps for MSMEs to raise funding through debt securitization:

1. An MSME approaches a bank or NBFC (referred to as the originator herein) for a loan.

2. When the originator issues a loan, an asset in the form of receivables is created in the balance sheet.

3. To hold title to the assets that underlies securities, a Special Purpose Vehicle (SPV) is established, which is separate from the originator in the event of bankruptcy.

4. The creator or holder of current or future assets sells them to the SPV.

5. The SPV issues Pass-Through Certificates (PTC), which are distributed to investors such as mutual funds, family offices, pension funds, and so on (converting debts to securities).

6. The SPV pays the originator for the assets using the proceeds from the sale of securities.

In this way, the receivables that would have been received otherwise in the form of loan repayment after a certain period have been partially received by the originator from the SPV in the form of the sale of securities.

How is Artfine aiding MSME financiers with the help of securitization?

Artfine has been at the forefront of the development of debt capital market instruments based on supply-chain portfolios. Artfine facilitated the country's first dealer and vendor pool securitisation, which was rated by all top rating agencies such as CRISIL, ICRA, and CARE. In addition to arranging Rs 1,000 crores in financing as part of its portfolio, the company has assisted over 800 SMEs. Centrum Finance (now Unity SFB) received assistance from the group in the acquisition and financing of L&T Finance's supply-chain finance portfolio.

What can we anticipate in the field of supply chain finance, how does Artfine's growth journey look like and what are its future goals?

Nearly half of India's exports are produced by its 63 million MSMEs. We anticipate that supply chain financing will increase the availability of funds for MSMEs over time. Supply chain finance will gain traction as it addresses the root cause of the working capital problem. Artfine's goal is to expand its presence and operations in order to provide more inclusion for MSMEs and meet their working capital needs. By FY25, Artfine intends to empower 10,000 MSMEs and 100 corporate houses.