Fintech startup Artfine helps MSMEs solve their capital problems
Fintech startup Artfine offers end-to-end solutions in supply chain finance (SCF). The company aims to democratize corporate and MSME working capital financing by converting and distributing supply chain finance (SCF) through the issuance of debt capital market instruments (pass-through certificates and bonds/CP), thereby providing high-return alternative investment opportunities to investors. . In addition, Artfine helps improve accessibility, reduce transaction processing time and costs, and bring transparency. Shantanu Bairagico-founder of Arfine, in an interview with Bizz Buzz, says, “Artfine has helped over 800 SMEs and we aim to expand their presence and operations to provide more inclusion for MSMEs and meet their working capital needs. By FY25, Artfine intends to strengthen 10,000 MSMEs and 100 business houses.”
What are the offers for Artfine? How does it provide end-to-end supply chain finance (SCF) solutions to cash-starved MSMEs?
Artfine offers end-to-end solutions in supply chain finance (SCF). The company aims to democratize corporate and MSME working capital financing by converting and distributing supply chain financing through the issuance of debt capital market instruments (pass-through certificates and bonds/CP), thus providing high-return alternative investment opportunities to investors. In addition, Artfine helps improve accessibility, reduce transaction processing time and costs, and bring transparency. From the digitization of KYC to video KYC, Artfine shortens the process and improves the reach of devices located in unbanked geographies. Therefore, the digitization of invoice discounts through online platforms has made it possible for lenders to provide financing regardless of the invoice amount.
While the group’s lending arm Arth Padarth Factors and Finance provides financing, the consultancy firm Artfine Consultancy provides services such as digitization of the supply chain, integration with various TReDs platforms. And our online debt distribution platform Arthavista helps generate liquidity through distribution to various investor segments such as HNI, family office, MF etc.
How has the MSME supply chain finance scenario evolved over the years?
MSMEs have experienced a paradigm shift in their supply chain finance scenarios over the past decade. Earlier, the only options available were traditional models of loans from banks/NBFCs, mostly against collateral, or informal sources like friends and family. However, three major developments have occurred since then. The first is the proliferation of new age lenders, mostly (backed by PE/VC funds), looking at cash flow based lending backed by the track record of MSMEs. Second, significant investment and innovation in technology has made this financing process easier and more cost-effective, increased transparency to avoid fraud, and so on. Third, favorable regulatory and policy tailwinds such as implementation of TReDs, changes in factoring guidelines and credit guarantee backed loans have led banks to renew their focus on the MSME supply chain. So far so good, but there is still some way to go, especially with regard to debt capital market participation.
What are the various options available to MSMEs in India to avail funds?
The sources of finance available to Indian MSMEs are as follows:
1. Banks: The cheapest and largest source of funds, but with generally strict conditions and a sometimes lengthy introduction process.
2. Large NBFCs: The second cheapest option, which is less rigid than banks but offers fewer product options.
3. Small NBFCs/Fintechs: Usually focus on a single product, so onboarding/approval process is faster, but price is not the best.
4. Alternative Funds/Venture Debt: Not available to all MSMEs, focusing on helping startups backed by PE/VC funds. They are expensive, but they are willing to support working capital needed for growth.
How does securitization work for MSMEs?
Securitization is the process of converting assets into securities. In this process, various assets, including debt instruments, are used to back up securities. Here, loans or receivables are tied together to create financial securities, also referred to as securitized debt instruments.
Thus, MSME loans can be packaged into loan pools or offered as securitized assets to buyers looking to invest in these asset classes. Securitized debt is an alternative source of financing for MSMEs through the participation of non-traditional lenders such as mutual funds, HNIs, family offices, etc.
There are six steps for MSMEs to raise finance through debt securitization:
1. An MSME approaches a bank or NBFC (referred to as the originator herein) for a loan.
2. When the originator issues a loan, an asset is created in the form of receivables in the balance sheet.
3. In order to have ownership rights to the assets underlying the securities, a Special Purpose Vehicle (SPV) is established which is separate from the originator in the event of bankruptcy.
4. The creator or holder of current or future assets sells them to SPV.
5. SPV issues Pass-Through Certificates (PTC), which are distributed to investors such as mutual funds, family offices, pension funds and so on (conversion of debt into securities).
6. SPV pays the originator for the assets using the income from the sale of securities.
In this way, the claims that would otherwise have been received in the form of repayment of loans after a certain period, are partly received by the originator from the SPV in the form of the sale of securities.
How does Artfine help MSME financiers through securitization?
Artfine has been at the forefront of the development of debt capital market instruments based on supply chain portfolios. Artfine facilitated the country’s first securitization of dealers and suppliers, which was rated by all top rating agencies such as CRISIL, ICRA and CARE. Besides arranging Rs 1,000 crores in funding as part of its portfolio, the company has assisted over 800 SMEs. Centrum Finance (now Unity SFB) received assistance from the group in the acquisition and financing of L&T Finance’s supply chain finance portfolio.
What can we foresee in supply chain finance, what does Artfine’s growth journey look like and what are its future goals?
Almost half of India’s exports are produced by the country’s 63 million MSMEs. We expect that supply chain finance will increase the availability of funds for MSMEs over time. Supply chain finance will gain traction as it addresses the root cause of the working capital problem. Artfine’s aim is to expand its presence and operations to provide more inclusion for MSMEs and meet their working capital needs. By FY25, Artfine intends to empower 10,000 MSMEs and 100 corporate houses.
