In an insightful conversation with Bfsinxt, Pushkar Mukewar, Co-founder & CEO, Drip Capital, a trade finance fintech, shares his thoughts on how the trade finance business has been ever since the disruptions led by Covid-19 had altered the dynamics of different businesses and especially MSMEs.
Pushkar also shared how MSMEs have recovered and some of their pain points, what differentiates Drip Capital from others, and much more. Edited Excerpts:
Q. How’s the market dynamics evolving and changed since the disruptions due to Covid-19?
The Covid pandemic impacted the cross-border trade industry the most. Primarily, this was because of the rapid spread of the virus and the closing of borders by almost all economies. The second reason was the major supply chain disruptions we are currently witnessing. Specifically talking about the trade finance space, the finance gap, as per the Asian Development Bank, has increased to $1.7Tn, with MSMEs taking the most brutal hit. Mainstream lenders became increasingly risk-averse, making MSMEs scout for other non-traditional finance providers.
The trade finance industry has benefited from this increased awareness about modern lending and has helped us create a more robust space in the market. MSMEs grew to prefer the convenience, simplicity, and customer experience this industry could provide.
Q. How has it changed your business, considering exports was a key segment for you?
In a bid to continue to build a resilient business amidst the pandemic, we had to shift from short-term goals to sustainable, inclusive growth objectives. Hence, we refined and enhanced our processes, risk model, operations, and technology, which has been transformational for our business growth, despite navigating through unprecedented times. Overall, we also realized that we had to see the industry less from merely a trade finance lens and more from a trade facilitation view.
In the last year, we successfully collaborated with major international industry players such as CMA-CGM, TradeLens, DP World, and global banks like Barclays and East-West Bank to power the next phase of our growth.
Q. How are disbursals through your platform looking like? The difference seen in recent times.
Disbursals were severely hit in the first half of 2020 during Covid. However, since then, the business has bounced back strongly. By value, we witnessed a ~45% Q-o-Q growth since the end of the second quarter of 2020.
While this trend is consistent across product lines and geographies, our business in Mexico and the US grew exponentially in 2021 as we expanded our teams there. This has helped diversify our business away from our primary market– India. Newer markets now make up for more than 35% of the business.
Q. How has your risk assessment gone through changes? And how are you collaborating with lenders?
To evaluate the creditworthiness of our customers, we have developed a proprietary risk model which combines 50+ checks with machine learning. The team constantly updates this model to improve our risk performance by exploring new data signals, sources, and novel evaluation techniques. We have outlined significant investment to build a risk data warehouse and risk engine, under which we plan to double down on aggregating additional data sources.
Since we are dedicated to servicing our clients quickly, we are even investing in automating our risk checks. This will aid us in our mission to facilitate international trade transactions for MSME exporters, unlike the traditional lenders whose processes take much longer. In this regard, we are always on the lookout and are keen to partner with data aggregators and risk platform providers who can help us in our endeavors. As it is doing so today, Drip will continue to partner with other key ecosystem players to leverage their data and offer credit facilities to customers.
Q. Can you share some notes on how technology is a differentiator for you among your peers?
One of our key differentiators is customer obsession with service and speed, i.e., to finance within 24 hours of receiving an invoice. This is of utmost importance, especially in fast-growing economies like India & Mexico, where businesses face a shortage of working capital solutions. To make our customers’ experience seamless and enable lending at a faster pace, we utilize third-party data and an internal integrated product and tech stack to do sourcing, underwriting, financing, etc.
The seasoned business development team with local on-the-ground sales, marketing, and channel partner teams, along with the engineering talent who also have a good sense of the product, collectively help us stand out from our competition.
Q. How are MSMEs responding to the crisis that emerged from Covid-19? Can you share some insights on the MSME ecosystem considering they are one of the largest employers?
In the beginning, MSMEs were heavily impacted due to the pandemic. It was easier for larger firms to keep functioning due to their widespread networks and hold over the supply chain. When freight costs to ship goods abroad started spiraling upwards, MSME businesses took a second hit. While the big firms had year-long contracts and could pay the premium rates to continue shipping their products, MSMEs had to pull back as they couldn’t afford shipping costs. These expenses were almost 20% of their invoice amounts compared to the usual 3-5%.
Since then, MSMEs have become resilient and opted for different techniques to tackle the problems. For example, MSME traders started shipping their products in bulk cargoes instead of containers to cut down on logistics costs as part of their supply chain innovation strategy. They have also learned the importance of market intelligence and have been consulting with logistics experts to understand daily market trends and find new opportunities to explore and identify markets to avoid in these uncertain times. These small companies, which usually did not put too much focus on insurance, have also started becoming much more conscious and prioritizing safety at all times as against taking on complex challenges.
