Online Reverse Factoring Platform

January 3, 2020

Small and Medium Enterprises (SMEs) play a vital role in the economic development of a country as the segment is a significant contributor towards the GDP and employment. Their contribution becomes more important in the case of developing countries like Nepal. According to the World Bank, ‘about 60% employment and 40% contribution in GDP is provided by SMEs in developing countries ‘.

However, the lack of finance is a major hurdle in the growth of SMEs. A recent study titled SMEs Financing in Nepal (Aug-Sep 2019) by Nepal Rastra Bank (NRB) found that 50% of SMEs access credit facility but loans from Bank and Financial Institutions (BFIs) only amounts to 16 % of the total credit availed. As per the study, the major sources of capital for SMEs are family inheritance 33%, personal savings 26%, informal sources 8%, remittance 7%, cooperative 6% and venture capital 0.5% respectively. The main challenges faced by SMEs while borrowing from BFIs are procedural hassles, high-interest rates, lack of collateral and lack of willingness of BFIs to provide credit to SMEs.

SMEs in Nepal are also troubled by the irregular cash flow from the market. All the outputs of SMEs are entirely absorbed within the domestic market, where the majority of the products are supplied to institutional buyers. However, most of the large buyers do not make the payments immediately after the delivery of the goods and demand credit period. The timeline for the payment often gets prolonged depending upon the buyers’ cash position and market scenario. This uncertain credit period makes managing cash difficult for the SMEs; this is particularly a huge problem for the smaller and recently established enterprises, which require working capital to run their operations

The ProductReverse Factoring definition

UKaid Sakchyam Access to Finance programme’s experience in the implementation of invoice discounting and warehouse receipt financing with banks have shown how such practices can be effective in providing access to finance for individuals/firms and provide an untapped market for the service providers.

To provide a similar alternative financing solution to the SME sector on a larger scale, Sakchyam partnered with F1Soft International. Under the partnership, Nepal’s first online reverse factoring platform – QuikBhuktani was developed.

Quikbhuktani is a secure web-based platform that can be used by suppliers, buyers and banks for supply and distribution chain financing. It facilitates the financing in a less complex financing process through a common platform.

 

How Online Reverse Factoring Helps

Suppliers

  • Steady and quick access to finance leading to steady cash-flow for better business operations
  • Non- collateralized and non-recourse financing
  • Lower financing cost based on buyer’s (usually much larger corporate businesses) credit profile

Buyers

  • Better utilisation of their working capital
  • Efficient cash-flow management
  • Improved relationship with the suppliers and the quality of goods supplied
  • Centralised management of multiple suppliers

Banks

  • Increased access to SME market and potential for additional clients/ business.
  • Opportunities to cross-sell existing products.
  • Better risk management due to risk-sharing mechanism with the larger buyers

Impact

The platform is expected to reach out to more than 1500 SMEs by the end of the project period and facilitate close to GBP 13 million of transaction volume through its online channel.

Text by Priya Tamang with inputs from Raju Shrestha and Samin Singh

 

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