Enabling MSMEs towards Social Commerce and Digital Inclusion through SCF

The digital world is changing in a jiffy, from e-commerce to social commerce. Companies are now tapping direct-to-customer (D2C) sales not only through e-commerce platforms but dedicated social commerce platforms.

MSMEs’ move towards social commerce can help them tap the new market to sell their products to consumers directly. Their digital inclusion can help them be part of a robust value chain and supply chain.

The Social Commerce Market

The social commerce models are built on connection, community, trust and parallelly support the traditional e-commerce models. Social commerce engages Gen-Z and millennial customers through social media to provide a wholesome shopping experience. A December 2020 social commerce report by Bain & Company estimated the market size to be USD 1.5 billion and expects to hit USD 70 billion by 2030 in India. It also forecasts that social commerce can empower 40 million small businesses to adapt to online commerce.

With the aim of India to become a USD 5 trillion economy by promoting initiatives like “Make in India” and “Ease of Doing Business,” MSMEs can gradually evolve and turn the tide in their favor by optimally utilizing social commerce models.

Fintechs empower MSMEs with new-age digital solutions to take the next giant leap in easing and creating mass awareness of digitization. They are the driving force in bringing the much- needed change in the anchor-led Supply Chain Financing process as well.

Digital Inclusion Through SCF Platforms

In context of supplier financing, an anchor is typically a buyer who buys goods from a supplier (vendor) requesting a consignment of goods. The buyer raises a purchase order (PO) during the process, and the supplier issues invoices for the goods shipped from his end. The anchor raises a funding request with the lender (financial institution) against the invoices. The to-and-fro between the three parties was a long-drawn administrative process until SCF platforms transformed into a paperless digital process.

The invoice-agnostic SCF platforms can store data and provide digital connectivity between buyers, suppliers, and lenders across the supply chain. The developers of SCF platforms are striving hard to integrate application programming interfaces (API) and Enterprise Resource Management (ERP) systems to ease the logistics and lending processes.

Ingenious Decision Making

With the rise in SCF volumes, the ecosystem can help build a model for financial institutions to partner with fintech platforms. The partnership can provide a seamless digital process and cater to diverse customers from various sectors. The augmentation of payable information with historical information and alternate data like pattern recognition and consumer behavior on social commerce platforms can democratize the power of artificial intelligence (AI) and machine learning (ML).

Banks and NBFCs can decide to provide factoring with or without recourse to the anchor based on the risk assessment. FIs are reluctant to provide factoring without recourse to small businesses since the lender has to absorb the risk. AI-enabled financing offers profound insights into the borrower’s creditworthiness and repayment potential, instilling confidence among lenders to provide factoring without recourse to MSMEs.

The Road Ahead

MSMEs need to adapt as per the changing market dynamics. Post the setbacks due to pandemic- driven lockdowns, more than half of MSMEs have seen a revival in their businesses. They have witnessed that the environment has become more favorable for online sales than ever before.

Social commerce has seen significant penetration in tier 2 cities and beyond; this will further help MSMEs to democratize their true potential and reach a new customer base. Start-ups are creating their network of community leaders, influencers, and resellers in regional markets.

To grab this opportunity, social commerce as an alternate sales channel and supply chain financing are the most viable options for small businesses to cope with the pent-up demand and get their operating cycles back on track.

The article has been written by Arun Poojari, Co-founder, Cashinvoice