The need to involve SMEs in a Supply Chain Finance (SCF) Program
It is a little ironic that while SCF programs are targeted towards providing funding for SMEs, in most cases, SMEs do not play an active role in the program. Most current SCF programs are characterized by Banks directly disbursing the funds based on trade information provided by the Corporate.
Due to this, SCF Programs are typically offered only to large Corporates as Banks are more comfortable with their risk profiles and business practices. If Banks can involve the SME Trading Partner at a Transaction level, it would open up a huge opportunity for Banks to expand the SCF offering to the largely untapped Mid-size and Small Corporate segment. As per a CRISIL study in 2011, the untapped market for SME funding in India is more than 50,000 cr.
Involving the SME Trading partner at a transaction level leads to multiple advantages.