How fintech solutions can support small exporters


In today’s world, it is essential to reach new markets by developing unique products and expanding operations. But financing these goals requires access to the most appropriate financing options – at the right time.

Fintech startups have emerged to help companies fund global partnerships and secure digital trade finance through revolutionary non-recourse factoring. Trade finance rejection rates hit record highs in 2020, with gap between demand and supply currently standing at $1.7 billion, according to a study by the Asian Development Bank (ADB) , a 15% increase from the previous estimate of $1.5 billion in 2018.

The bank’s latest research reiterates findings from previous studies that the trade finance gap disproportionately affects small businesses, which are also heavily impacted by supply chain disruptions. Around 40% of rejected trade finance applications were from small and medium-sized enterprises (SMEs).

There are significant obstacles for SMEs in obtaining financing. Banks in the UAE are currently adopting cautious trends and avoiding lesser-known potential customers. Many lenders have also taken a cautious approach to trade finance – and this is likely to continue in the future, especially for SMEs wishing to trade internationally. SMEs are also often unable to gain access to trade finance because they cannot provide collateral. On top of that, they lack detailed information on market trends, know-your-customer (KYC), or risk management strategies that attract lenders.

Fintech companies are uniquely positioned to fill the void and help SMEs access flexible infusions of cash exactly when they need it, as well as put in place digital processes that allow them to trade successfully across the board. international.

Big data has the potential to level the playing field when assessing the risks of cross-border SME financing. Because every business has its unique risk profile, fintechs are taking a more personalized approach to making lending decisions through a unique process. Digital trade finance leverages data to assess the risks of a growing group of underserved merchants. For example, digital trade finance can present a holistic view of a seller’s risk profile by analyzing multiple operational data points from credit insurers and additional underutilized sources. Understanding the actual risk of each transaction, as opposed to the perceived risk, streamlines business workflows. Another benefit of a data-driven infrastructure is that the system continually improves to identify the type of information most useful in determining the risks involved with a particular buyer or seller.

How it works
By leveraging digital trade finance, small and medium-sized merchants can get invoices paid sooner, rather than having to wait up to 120 days or even longer. Additionally, by leveraging numerous data sources, digital trade financiers have a better understanding of the risk to SMBs and therefore can not only verify and confirm the legitimacy of the buyer, but also ensure payment of the invoice. With fintech solutions, SMEs can optimize their cash flow without the need for guarantees or letters of credit. They can request funding in five minutes and have money in their account 48 hours later, remove credit risk and trade with confidence, reduce payment disputes, make their cash flow more predictable, free up lines of credit to invest in growth-generating initiatives, including purchasing equipment and transparently tracking their shipments.

In a word
Digital trade finance tools can help businesses reduce credit risk, forecast cash flow and allocate working capital. Additionally, access to a digital trade finance solution can help SMEs explore a broader customer base and supply base, potentially discovering new channels to buy or sell goods.

Ankit Goel is the regional leader of Modifi


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