Lending to MSME sector in a big, better way

Cashinvoice offers end-to-end supply chain financing services to most of India's top 50 corporate houses. This enables the digital platform to reach out to all its MSME suppliers. The platform has processed 500,000 invoices last fiscal year, financing more than Rs 2,000 crore to these small businesses. In an exclusive interview with Bizz Buzz, the company's CEO Arun Poojari said that it eyes a five-fold rise in the transaction value at Rs 10,000 crore this fiscal year

The pain point is not the rate of interest but the availability of cash. That is the main problem statement. We are not only solving this problem; we are also making sure that the balance sheet is healthy

The rate of interest varies from individual to individual, trade to trade, and segment to segment depending on the risk attached. But if our customers were borrowing at a certain interest rate on past occasions, we are providing it at three to four per cent lesser than that

What is the motivation for entering into the cash invoicing segment of the financial services space?

The idea itself is so powerful that no bank or no financial institution can meet the requirement fully as far as working capital is concerned. Therefore, Cashinvoice helps small and medium enterprises to raise cash on their invoice. Also, we are bank agnostic. Not only that, no anchor company (the big company to which small enterprises supply various goods and services) can provide customised solutions to all suppliers.

Even the government has created many enablers to the cash invoicing space. For instance, the Factoring Regulations Act 2011 has mandated a platform for MSME players. This also enables digital play in the factoring space. All these factors have led to two things. Firstly, off-balance sheet financing has been possible due to this. Secondly, the smaller players can raise working capital due to customised solutions.

So, Cashinvoice is a marketplace. Do you have an NBFC license to do lending from your balance sheet?

We are a marketplace. We always have an option to be an NBFC. We offer solutions to anchor companies from our own perspective, not from the anchor's perspective. In the industry, we have integration with all platforms; we have an association with more than 25 banks and NBFCs. We address very large corporate players to small retailers. So, the idea is to touch the lives of the small businessmen by providing them with the payment much earlier than the usual period. That is how their cash flow also improves.

What is the discounting factor for the cash invoices? Do you receive a good discounting on these for the SMEs which don't have much bargaining power before the financial institutions?

The interest rate is only one factor. Another thing is that when an MSME must do discounting, they need to borrow. Imagine the owner of an MSME player when he needs to borrow. He must provide guarantees, collateral, and other things, which will put pressure on their balance sheet. What we are saying is that this is the business owners' own money, so why should he borrow? If he can discount the bills without any recourse at a price that is comfortable to him, this is a win-win situation for all stakeholders.

As far as the rate of interest is concerned, it varies from individual to individual, trade to trade, and segment to segment depending on the risk attached. But if our customers were borrowing at a certain interest rate on past occasions, we are providing it at three to four per cent lesser than that. So, there is a substantial reduction in their rates of borrowing. But the pain point is not the rate of interest but the availability of cash. That is the main problem statement. We are not only solving this problem; we are also making sure that the balance sheet is healthy. At this place, the structuring comes up. Our team with vast banking experience, we can create that structure that is lucrative from sellers' perspective.

What is the Cashinvoice's customer base now? Is it growing?

Last year, we had done more than five lakh transactions. We crossed around Rs 2,000 crore of volume. There are more than 2,000 participants.

What is the revenue model of Cashinvoice?

Importantly, we work as an enabler for both banks and businesses. For this, we charge a fee because of the value proposition we create on our platform. The charges are on the buyer and not on the seller. The idea is to create scale so that we touch the lives of people. The idea is not to make money. Because, it is a matter of scale as far as MSME space is concerned. We have crossed Rs 2,000 crore of transactions last year and aim to increase it fivefold to cross Rs 10,000 crore this year. That's where the concept of the scale comes up.

Our approach is top-down. Under this model, we tie up with an anchor (big company) and then we come down to their suppliers. We have a service fee, which is not loaded on the supplier (which is an MSME player) but on the buyer. We make enough money. As a startup, we are yet to see breakeven but that will eventually happen. We also work on the receivable side. For example, the distributor or stockist of a large FMCG company. The idea is - wherever there is a credit, there is an element of discounting.

How many large corporates are there on your platform?

We work with most of the top 50 companies in India. As we grow, we will focus on the second and mid-tier companies.

Does your platform also allow an individual MSME to list its invoices? Is it limited to the suppliers of anchor clients only?

The idea is to reach all MSMEs. It's a matter of scale. Currently, suppliers of large corporates are there but as we will reach out to small and mid-tier players. Also, when we cover most large corporates, we also enable a large portion of MSMEs to be on our platform.

Will Cashinvoice be ambitious in the future and do lending on its own as an NBFC?

Currently, we work as collaborators for all stakeholders. We feel that if we work as NBFC, our focus will change. The idea is to be like Paytm for working capital.