Driven by its mission to provide easy and digital access to affordable finance for the smallest of MSMEs across all tiers of supply chains (suppliers, dealers and retailers), Vayana Network - a trade, B2B supply chain finance platform - has completed financing $ 6 billion (Rs 42,000 crores) on its platform. Ram Iyer, CEO & Founder of Vayana Network, believes financing supply chain is like financing the GDP of the country. Iyer, a serial entrepreneur, was the Co-founder and CEO of CashTech Solutions - a leading Cash Management vendor in Asia which was acquired by Nasdaq listed, Fundtech. Vayana Network aims to increase the number of MSMEs on its platform from present about 20,000 to 1 lakh by the end of the next financial year. In conversation with Rakesh Rao, Ram Iyer explains the importance of MSMEs for India's economy, and elaborates of the growth hurdles before MSMEs and probable solutions.

Every company who is into buying and selling products and services needs/gives credits. Giving credits means not having cash. For SMEs, this is a big problem because they do not have access to finance that the larger companies have. And if they don't provide credit, they may lose business. Therefore, we thought of creating a network that allows banks and NBFCs in this country to lend credit to the smallest of the enterprises, as long as they are part of some supply chain.

Vayana is a network of enterprises that are part of supply chain and who require credit for the trade. We, by ensuring that every information is digitised and available to the lenders, to provide SMEs credit at the most affordable interest rates as possible.

Banks and NBFCs normally do not service very small enterprises because there is a huge cost in terms of servicing the smaller guys as trade credit amount is very low and they need it for very short term (barely about 30-90 days). So, we ensure that the cost of processing for these lenders goes down by making the entire thing digitalised and, therefore, SMEs/traders can get access to very cheap credit compared to any other credit forms. 

We work closely with 16+ financial institutions and NBFCs and about 20,000 MSMEs who have enrolled with Vayana Networks. We aim to take this number to 1 lakh by the end of the next financial year.

What is an average loan amount that typical MSME seeks from you? 

It completely depends on the industry. For a small retail kirana shop, requirement maybe for Rs 5000-10,000. On the other hand, steel product company’s minimum requirement would be Rs 5-10 crore and auto dealers’ may be Rs 50-60 crore. So, it entirely depends upon the sector. And that's what makes it very interesting because you get to see all sizes and shapes.

You get to see all participants in various parts of the supply chain and everybody tends to have a slightly different requirement.

We have the unique distinction of having zero default - not a single lender has lost money on our network. One of the reasons is that it is a kind of Dal-Chawal business (i.e. you are focusing on essentials that are required to run the business) and borrowers tend to repay the loan.

There are two very important things for borrowers. First, they borrow for things which are essential for the business continuity (otherwise they will be out of their business). Second is the rate has to be very low.

Borrowers tend to repay loans which are required and are cheaper as opposed to loans that are costly and there is no necessity to repay immediately. This is one of the reasons why traditionally world over, supply chain financing (or trade financing) has had lesser default compared to others.

We focus a lot on relationships between the buyer and the seller. If relationships are strong, then both sides try to make sure that there is no default.

Also, key thing with Vayana Network is the low rate of interest. Nearly 95 per cent of our book is below 10.5 per cent interest rate. We ensure that loan rates are far lower than what they can get from their banks. It's a cash flow lending model and not a balance sheet model. If the cash flows are good, then you should lend and lend it at very low rate (as risks are negligible). While many of the Fintech firms offers loans at 18 per cent and above, we offer loans at less than 14 per cent.

Our focus is on volumes. Financing supply chain is like financing the GDP of the country.

First, their bargaining power with respect to the larger customers is very low. They often end up financing large customers. Second, their working capitals are always negative and therefore, they need access to finance. To access finance, if they opt for a bank or NBFC channel, they need to give collaterals as security which they don't have much.

Other big bottleneck is lack of mentoring and educating for MSMEs. A lot of entrepreneurs run these micro & small enterprises independently, and, therefore, making mistakes may prove very costly if you really don't have financial backing. Hence, it is important to guide MSMEs with respect to how to manage the business output, scaling up, managing finance, etc. 

Large number of regulatory compliances for MSMEs is another area which is constricting the growth. With frequent changes in regulations, norms, policies, etc, it becomes difficult for MSMEs to comprehend these changes and adhere to them. While efforts are on to make it easy for businesses to run, still lots need to be done. 

India has a unique problem. Now most of the companies remain in the same size that they were born with. For example, if they were less than Rs 10 crore company, they remain less than Rs 10 crore company. There are very few companies that grow from micro to small to medium to large. One of the reasons why companies do not grow is lack of support when the company is small. One of the biggest hindrances is lack of finance at low rate and at right time.

In India though the number of MSMEs is large, their size (turnover) remains the same. Growth capital is not available easily for MSMEs who want to grow.

Vayana Network actually wants to break this jinx that if you are an SME, you will remain small. Increasing company size is also important for the growth of the economy. India will not become a $ 5 trillion economy, if MSMEs remain small. A lot of businesses will have to become much larger than what they are today. So, our real focus is to help companies grow (from micro to small to big) by providing not just finance but also other key ingredients (like market/demand forecast, mentoring, collaboration within supply chain, etc) that are needed for the growth.