Small businesses in India create a staggering number of jobs, employing over 100 million people across the country. The micro, small and medium enterprise (MSME) sector also forms the backbone of India’s economy, accounting for 29 percent of the country’s gross domestic product (GDP) and 49 percent of its exports. Despite their crucial economic and societal role, these small businesses are held back from reaching their potential by the lack of access to timely and reasonably priced credit products they need to succeed. Without adequate credit, Indian MSMEs aren’t prepared to weather challenging times, supply chain shocks, or get what they need to grow in the future. The ongoing pandemic has disrupted supply chains, increased procurement costs, and has made it even more challenging for MSMEs to access credit.

At Accion Venture Lab, we believe in the potential of supply chain financing to bridge the working capital gap for MSMEs. That’s why we’re excited to invest in Cashinvoice, a digital invoicing and payments solution for large and mid-sized companies and their small business vendors and customers. Cashinvoice leverages technology to bring financial institutions, large corporations, and their MSME suppliers and customers onto a single platform that streamlines payments for their services, unlocks working capital for small businesses when they need it, and offers them embedded lending products to expand their businesses.

We are excited to partner with Cashinvoice as they:

Close the financing gap for small businesses in India

Traditional lending institutions only fulfill an estimated five percent of the need for short-term working capital financing in India. That leaves an overwhelmingly large proportion of the country’s 65 million MSMEs without access to appropriately priced, short-term working capital and creates a massive credit gap among MSMEs who cannot provide adequate collateral or documentation needed to secure loans from traditional lenders. Even if these businesses had the collateral or documentation needed, traditional lending institutions and non-banking finance companies (NBFCs) predominantly offer expensive term loan products that aren’t optimal to meet the working capital needs of small businesses.

Cashinvoice aims to close this huge financing gap for small businesses by partnering with large and mid-sized corporations to build customized channel financing programs for the MSMEs within their value chain. Cashinvoice’s tech platform seamlessly brings together validated invoices, historical business transactions with these corporate anchor partners, and other data points to assess the credit risk of anchor partners’ small business vendors and customers. For example, a small business operating as a vendor for a corporation can choose to be paid upfront in lieu of a discount against an invoice that is expected to be settled by the corporation in the next 30 to 60 days, the typical credit period. The discount is calculated dynamically through algorithms that use diverse data sources and the credit profile of the business. Access to proprietary data helps reduce the credit risk and thus lowers the credit cost for the MSMEs.

Leverage data to make financial services more accessible

Supply chains across many industries in India have traditionally operated offline, relying on paper invoices and cash to complete transactions. The lack of digital records creates a challenge for MSMEs when they need to validate invoices and access data to prove past trade relationships with their corporate partners. Cashinvoice’s platform brings ecosystem players of offline supply chains onto a digital platform and thus creates a rich data source on trades between them. Cashinvoice leverages this data source to enable invoice financing for MSMEs, which brings down the interest cost for them compared to other credit products.

As the company scales, Cashinvoice’s platform will collect pools of MSME data on business performance, cashflows, and loan repayment history. With this information, the company plans to provide a range of financial services to its small business customers, such as corporate credit cards, insurance, working capital loans, current accounts, and more. With access to rich data on the MSMEs, the financial services products can be customized to their needs and offered in a timely manner.

Digitize supply chains and create digital footprints for MSMEs

Traditionally, most payments and collections between retailers and distributors happen in cash. Cashinvoice’s platform creates a digital collection of receivables within the supply chain to replace offline transactions. Digital collections are more efficient and enable small retailers to build a credit history and generate a digital trail of data. With this digital footprint, MSMSEs can gain access to services provided by formal financial institutions at a lower cost.

The Accion Venture Lab team is excited about the journey that lies ahead for Cashinvoice. We look forward to supporting Cashinvoice’s stellar team as they work to digitize offline value chains and open access to supply chain financing solutions for MSME customers. We believe that access to supply chain finance is key to the growth and sustainability of small businesses in India and worldwide.