Embedded Finance: Unlocking Working Capital for MSMEs to Propel Growth

  • Articles
  • May 27,24
- Embedded financing emerges as the guiding light steering businesses towards financial stability.
Embedded Finance: Unlocking Working Capital for MSMEs to Propel Growth

MSMEs contribute significantly to employment generation and GDP growth; however, they often face challenges in accessing working capital, hindering their day-to-day operations and expansion plans. Traditional financing models which include lengthy approval processes, collateral requirements, high-interest rates, etc. make it difficult for MSMEs to navigate the financial landscape effectively.

Embedded financing has emerged as a pivotal tool, finding its most impactful use case in the support and growth of India's MSMEs. While the ‘buy now, pay later’ (BNPL) is a debatable concept in the consumer industry, ‘embedded financing' has proven to be a game-changer by unlocking working capital for the backbone of India's economy – the micro, small, and medium enterprises (MSME).

A catalyst

Embedded finance seamlessly integrates financial services into existing business platforms, eliminating the need for separate licenses or infrastructure. For example, an e-commerce platform might offer buy now, pay later financing at checkout, while a ride-hailing app could enable direct in-app payments for rides. This innovative approach allows businesses to provide financial products and services without the traditional requirements. Serving as a catalyst, embedded financing addresses the specific challenges of MSMEs in India by automating transactions and offering real-time insights through platform integration.

Embedded financing offers numerous benefits for MSMEs, enhancing their financial capabilities. Firstly, it simplifies access to capital by streamlining the acquisition process, providing a user-friendly alternative to traditional loans. This facilitates quick access to funds, enabling MSMEs to meet immediate financial needs without bureaucratic hurdles. Secondly, it allows for tailored financial solutions, recognising the diverse needs of MSMEs. Whether it is managing inventory, meeting payroll, or seizing growth opportunities, businesses can customise financial services to align with specific requirements, fostering operational flexibility. Moreover, embedded financing empowers MSMEs to proactively manage and mitigate risks in a dynamic economic environment. By providing financial flexibility, it helps businesses navigate economic downturns, market uncertainties, and unforeseen challenges, enhancing resilience. Additionally, the integration of embedded financing into MSME operations is often facilitated by technology-driven platforms and fintech solutions, promoting financial inclusion and accessibility to the latest financial technologies for smaller businesses.

Supply chain financing

Embedded financing, often in the form of supply chain financing, optimises cash flow within a business's supply chain. It offers early payment options to suppliers or negotiates extended payment terms with buyers, ensuring efficient working capital flow. This flexibility enables businesses to maintain seamless operations, seize growth opportunities, and navigate modern business challenges. Consequently, small businesses access capital precisely when needed, fostering a win-win scenario for all stakeholders involved. For example, a manufacturer who secures early payment discounts from suppliers through supply chain financing is capable of providing retailers with competitive pricing because of the cost advantage. As a result, consumers are also able to acquire products at reduced prices.

Embedded financing emerges as the guiding light steering businesses towards financial stability. It ensures a consistent flow of capital, empowering organisations to navigate challenges and seize opportunities. Like a reliable compass, embedded financing directs businesses towards success. Beyond being a mere financial tool, it becomes the driving force propelling businesses forward. It is essential to embrace embedded financing for resilience and efficiency and utilise its potential to optimise cash flow and streamline transactions.

About the Author:

Sachin Agrawal is the Co-Founder & CEO of Bizongo. The Forbes 30 under 30 achiever is an alumnus of IIT Bombay and has previously worked with Pepsico, Biocon and Gravitas. Agrawal co-founded Bizongo in 2014 and is transforming the Indian B2B trade since.

Spotlight Blurb- Just like a reliable compass, embedded financing directs businesses towards success. Beyond being a mere financial tool, it becomes the driving force propelling businesses forward.


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