In general, SMEs account for 45% of India’s total export volumes but are some of the most underserved when it comes to working capital provisions. Demands for collateral, long processing times, heavy paperwork burden, and other such factors contribute towards making working capital highly inaccessible for SMEs. Institutions like factoring firms and NBFCs offer alternative financing solutions; however, many SME exporters are unaware of these offerings and need to be educated about the same. One of the easiest such alternative methods is invoice factoring.
At its most basic, invoice factoring is a process of procuring finance by selling the invoices of your transactions to a third party known as the factor. Based on your transaction history and other parameters, the factor gives the seller (the exporter) a credit line which they can then use to finance further transactions to other buyers (importers). In most cases, the seller gets 80% of their invoice value upfront from the factor (often without the need for collateral), and the remaining 20% -- minus the factor’s fees and interest -- after the buyer transfers the value of the invoice to the factor.
The plastics industry is one of the fastest growing sectors in India with a double-digit growth rate on average. The industry spans the country, with more than 2,000 exporters shipping various plastic goods and products. In FY2018-19, alone, Indian plastics exporters fulfilled shipments worth US$10.98 billion, 3.3% of the country’s total exports for the period. Indian exporters ship plastics to 205 countries, with the top five destinations being the US (11.96%), China (11.67%), UAE (5.28%), Italy (4.11%) and Germany (3.71%). India is also ranked among the top five consumers of polymers in the world and has 30,000+ plastic processing units employing over four million people across the country. Karnataka in particular contributes about 2.5% of the country’s plastics exports, worth roughly US$197 million.
Mr. Nath Kakani, Regional Sales Lead, Drip Capital said, “There are many small and medium industrial units in and around Bengaluru. However, these SMEs contribute only about 16.2% of the city’s outbound shipments, much lower than the country average of 48%. An important cause for this is that many of these SMEs face severe issues with managing their working capital because of a lack of adequate financing options. In order to solve this problem, Drip Capital provides collateral-free post-shipment finance to Indian exporters with instant approvals and minimal documentation.”
Drip Capital is a US-based trade finance firm that was founded in 2015 by Pushkar Mukewar and Neil Kothari to solve the financing problems faced by MSME exporters in India and abroad. Since its product launch in 2016, Drip Capital has seen rapid adoption by the Indian exporter community. The company has had exponential growth, growing over 20x times in terms of working capital financed in the last two years. The growth has been fuelled in part by an intense focus on technology and drive to productize trade finance by offering solutions customized to solve common issues and pain points faced by exporters.
Drip Capital has financed over $500 million worth of invoices till date, and currently works with over 400 exporters across various product categories and geographies across India and Mexico. Mr. Pushkar Mukewar, Co-founder and Co-CEO, Drip Capital, added, “A lot of Drip’s growth has been fuelled by increasing demand from labour-intensive and SME-dominated sectors, such as plastics. As per our latest data, Bangalore has over 300 SME exporters (except SEZs) who exported a combined total of almost 65,000 shipments, worth US$1.2 billion, in FY 2018-19 alone. While this number may be skewed due to the presence of several corporate offices in the bustling metropolis, there is little doubt that Bengaluru is a major commercial and exports hub, especially for the plastics sector. Drip looks forward to helping these exporters push this figure even higher.”
Drip Capital aims to educate exporters across industries and verticals about the great potential offered by invoice factoring and other trade finance services. The Bengaluru seminar, in conjunction with PLEXCONCIL, served to reinforce the potential of the solutions provided to exporters by Drip Capital.
Drip Capital’s plans include expanding into new markets across the world and leveraging technology to solve multiple problems commonly faced by exporters. Moving beyond trade finance, the company aims to continue leveraging data, technology, analytics, and a team of highly motivated professionals to become a leader in the global export ecosystem.