SME Financing through technical Intervention – Instant Invoice Discounting Platform
(A partnership between UKaid Sakchyam and F1Soft International Pvt. Ltd.)
Access to external short-term financing from banks has been a challenging issue for Small and Medium Enterprises (SMEs) affecting their liquidity and growth. As per Enterprise Survey 2013 conducted by World Bank for Nepal, Access to Finance was considered as one of the prominent business environment obstacle by the small firms preceded by political instability and electricity. 35% of the firms were reported to have bank loans/line of credit with only 16.2% of the firms availing external working capital financing.
SMEs and small producers sell majority of their products to few large institutional buyers. Leveraging their size and market standing, most of these large buyers demand credit period ranging from 90 days to 180 days after delivery of goods. And these commitment to pay, often gets prolonged depending upon the buyers’ cash position and market scenario. This hits SMEs hard, particularly those with limited resources and relatively new market presence. The invoices or account receivables have no liquidity till its realization/settlement from the buyers. UKaid Sakchyam Access to Finance Programme (Sakchyam) has supported few ‘invoice discounting’ initiatives; however those efforts weren’t sizeable enough, particularly to cater to the needs of the SME segments that are dispersed throughout the country.
Individual warehouse receipt financing or invoice discounting that Sakchyam has implemented provided an insight to how these sort of financing works and actually benefits clients and banks both – a new way to access finance for individual/firms while an efficient way to reach out to untapped market for banks. However, the processes being followed in these initiatives were still manual and paper based. So it was imperative that if this initiative is to take a scale and reach out to wider market segments, technology has to be introduced.
Sakchyam then reached out to different banks, solution providers (national as well as international) in search of a platform that could facilitate the ‘invoice discounting’. After several rounds of discussions, specific feedback from Sakchyam on type of platform design that is needed, F1Soft International Pvt. Ltd., which also operates a well-known ‘E-Sewa’ i.e. a mobile wallet based online payment platform in the country, came up with a proposal that had all the merits required to meet the market needs. Finally, Sakchyam entered into partnership with F1soft International Pvt. Ltd. to launch ‘SME Financing Through Technical Intervention’ targeting SME segments.
Over the project period of two years, this partnership will lead to the establishment of QuikBhuktani – an online ‘reverse factoring’ platform, a first of its kind in Nepal and will be accessible to all the SMEs dispersed across the country. The platform is expected to reach out to more than 1500 SMEs and facilitate close to GBP 13 million of transaction volume through its online channel.
As of September 2018;
- Product launch and SME onboarding expected to begin in January 2018
- 1,500 SMEs targeted to be on-boarded by the end of 2 years
- IIDP was showcased to various banks at F1Soft’s recent Annual Bankers’ Meet