Online trade financier, PrimaDollar that officially launched its operations in India a few months ago after a year-long pilot, is looking at some potential partnerships with supply chain and logistics companies in the country soon.
The company is already in discussions with some leading players, both global and local, in that segment, said its founder Tim Nicolle without naming any and added that global trend suggests that the trade finance segment will merge with logistics in the coming months.
Maersk, the world’s largest shipping company, made a move into the world of trade finance last year after having invested in a German technology platform Modifi that provides digital import and export finance solutions for SMEs. Meanwhile, Singapore-based Incomlend, an invoice finance platform, has launched a new platform called Shipfin Trade Finance to provide trade finance services to clients of shipping and logistics group CMA CGM across 160 countries.
Nicolle told IBS Intelligence that PrimaDollar is betting big on the logistics and supply chain segment to help exporters get collateral-free finance for shipping exports instead of relying on banks for separate finance.
With clients in over 30 countries, the UK-based FinTech provides low-cost trade finance to importers and exporters across India, Bangladesh, Pakistan, and South East Asia while banking on the $17 trillion global opportunities.
Talking about the business model, Nicolle said that the company started by providing working capital finance to SME exporters at interest rates varying from 10% to 16%. However, it soon re-engineered its product to provide funding at prices as cheap as 4 % and could go up to 10 %.
“We worked on our business model and re-engineered our funding strategy. We are borrowing cheap enough to lend cheap. Besides, we are using technology to do strong scoring and underwriting to avoid defaults. We are expecting a 4x annual growth in our book size in 2020,” Nicolle said. He further added that the global trade finance market is looking for a transactional solution that works shipment-by-shipment, without the need for complex multi-period financing agreements or IT integrations and low-cost collateral-free loans.
Talking about the India opportunity, Nicolle said that the trade finance gap currently stands at $1.5 trillion globally, the majority of which is amongst small business exporters in emerging markets. In India, the trade finance gap stands at $80 billion with NBFCs are playing a pivotal role in driving financial inclusion and have quite much emerged as a reliable alternative to mainstream banking.
However, access to trade finance is further restricted in the case of Micro Small and Medium Enterprises (MSMEs) as they are heavily dependent on the domestic market. With the wave of globalization, MNCs /International companies are looking at the Indian market with keen interest as a market as well as a source of finished goods. MSMEs have made use of this opportunity and are exploring overseas markets, leading to an increased demand for trade finance.
“India provides us with a great opportunity because, despite an economic slowdown, the exports have risen by 7% in 2018 and are still on the rise. At the same time, bank finance, which works mostly on collaterals, for exports declined by 20% in 2018,” Nicolle said, adding that the company is targeting the mid-size exporters who are responsible for 80 % of the value of exports done.
He also added that trade finance is evolving globally with the technology that helps in controlling credit risk besides suggesting the right pricing for lending products. “ Trade finance can become the holy grail of FinTech by controlling credit risk and getting the price right. In that combination, you have a massively scalable business, and it is a blue ocean opportunity. We don’t have to displace the banks, because the banks aren’t there in this segment,” he added.