Export Financing in India
The contribution of the exports sector to India’s GDP stands at 21.4%; in December 2022 and the overall exports in India stood at USD 61.82 billion. This number exhibits a negative growth of -5.26% as compared to the same period in 2021.
The reason for this fluctuation is not just the government’s trade policies but several other factors. India has more than 63 million MSMEs, 50% of which contribute towards Indian exports. Despite so many MSMEs contributing to India’s exports, only 20% of these businesses are supported by some kind of export financing. Export financing is a cash flow solution which allows sellers to access cash instantly so that they don’t have to wait for the buyer to pay.
Export financing in India has grown at a slow pace because of the discrepancies that exporters face while trying to attain financing. Can an Indian exporter avail Export Financing easily in India? Let’s find out.
Challenges faced by Indian Exporters
India aims to grow its exports to USD 1 trillion by 2025, which is encouraging for Indian exporters as they get an opportunity to grow their businesses at a faster pace. However, every Indian exporter faces the following roadblocks:
- India’s global trade infrastructure is not the best in the world. To put this in perspective, India just stands 10 points ahead of last-ranking Bolivia and approximately 27 points behind the top-ranking Singapore as per Statista’s data reports. The main reasons behind the poor infrastructure are the congested ports, congested roads, lack of proper connectivity and lack of adequate equipment such as rail equipment.
- Sending goods to foreign countries requires complicated paperwork. Even though the main documents comprise Bill of Lading, Commercial Invoice and a Shipping Bill, it is the long list of added documents that makes the process cumbersome. Even a small error can cause massive delays and added expenditure for Indian exporters.
- The Indian government’s strict regulations regarding the global trade market makes it difficult for importers as well as exporters. Heavy import duties, inconsistent tariffs are some of the factors impacting exports in India.
- Businesses in India, especially MSMEs find it very hard to get export financing or credit even though they contribute to half of overall exports. Complex procedures, complicated documentation, high rates of financing, heavy collaterals demanded and lack of appropriate information are some of the factors making exports a difficult market to survive for Indian exporters.
Bank loans used to be the only source of credit or financing available for Indian exporters. A long filtering process and heavy rejection rate has always been worrisome for Indian exporters. Fintech players, on the other hand, are trying to change the game and make export financing a seamless process.
Export Factoring To The Rescue
In the last few years, there has been an emergence of multiple Fintech players supporting MSMEs with instant working capital through solutions such as Export Financing, Export Factoring, Reverse Factoring.
Export factoring is a type of receivables based financing which involves purchasing, financing and managing of short term account receivables of an exporter, by a financial institution (Bank, NBFC, Funds). This provides an easy access to instant capital for Indian exporters which solves their problem of low credit access. Now, Indian exporters are not required to stand in long queues waiting for their chance at financing. Following are the benefits of Export Factoring for exporters:
- Extended Payment Terms: Exporters can offer extended payment terms to Importers or buyers.
- Risk Mitigation: Get credit insurance to protect yourself against buyer bankruptcy and defaults.
- Improved Liquidity: Draw funds on an immediate basis of up to 80-90% of the invoice amount.
- Scalable Financing: Factoring done on the basis of the size of the order as well as overall business growth (limit enhancement).
- Impact on Balance Sheet: Export Factoring has no negative impact on the balance sheet as it is treated as an advance and not a loan.
Conclusion: Is getting Export Financing Easy?
Fintech players, through digital innovation and financial inclusion, have been developing solutions that can help MSMEs grow exponentially. There are a few reliable fintech players who are providing export financing. KredX, India’s largest supply chain finance platform has their very own ITFS platform regulated by IFSCA, KredX GTX (KredX’s Global Trade Finance Exchange). Exporters can log on to gtx.kredx.com and sign up for quick export financing. Therefore, with the support of the Indian government and the innovations by fintech players, Export Financing has become easier to attain as compared to the past few years but it is yet to unlock its true potential.