Interviewed by Anisha Saha, MBR Team

Veefin is the world leader in contextual supply chain finance. Veefin is a comprehensive solution facilitating bankers to customize promptly without relying on third-party execution.

MBR: Supply chain finance is becoming quite a popular mode of financing in Bangladesh. What is the current market size of supply chain finance in Bangladesh?

Raja Debnath: Supply chain finance is entirely a new concept in Bangladesh. In the last five years, banks and NBFIs have started talking about this mode of financing, there are two main parts in supply chain financing: one is supplier financing, and the other is dealer financing. It can be described as the sell and purchase side of a large corporate. In Bangladesh, NBFIs and banks are active on the dealer financing side. We have not seen the concentration in supplier financing other than the business of factoring. The current portfolio of supply chain finance, including all the banks and NBFIs in Bangladesh, is around BDT 1700-1800 crore, which is a minimal portfolio in the context of Bangladesh. In terms of penetration, the USA and the European countries are leading worldwide in supply chain financing. If we look at Europe, roughly 20% of their GDP is financed through supply chain finance transactions. The current GDP of Bangladesh is around USD 350 billion. If we assume the same 20% for Bangladesh, after 5-10 years we can see that SCF as a business line may become the largest single business line within the lending institutions. The most exciting part is that we have just scratched the surface of supply chain financing in Bangladesh.

MBR: What are the challenges of supply chain finance from both supplier and buyer perspective? Do they need adequate training on this concept?

Raja Debnath: There are a few challenges of supply chain financing in Bangladesh. The first one is the limited knowledge of supply chain finance in the market. The second one is that lenders require the same level of paperwork as they do for other regular loan products. The third is digitalization. Globally, in supply chain financing, all the successful models rely on digitalization. In Bangladesh, not too many banks and NBFIs have completely digitalized themselves to allow their suppliers, dealers, and anchors to avail supply chain financing arrangements with minimal hassle.

In terms of overcoming the challenges, the ssuppliers and anchors need adequate knowledge, and the banks require a proper understanding of the philosophy of supply chain finance. So, I believe that capacity building is needed not only for suppliers, anchors but also for the bankers. The lenders and the people who are offering these products should have adequate knowledge about the product to answer all the corporates’ queries. So, the lenders’ capacity building is as important as that of the suppliers/dealers/anchors.

Digitalization is essential because it will reduce the number of people required for managing the product end to end. If the number of people managing the product Raja Debnath Director Veefin Interviewed by Anisha Saha, MBR Team Veefin is the world leader in contextual supply chain finance. Veefin is a comprehensive solution facilitating bankers to customize promptly without relying on third-party execution. 18 of 32 digitalization, that will lower the cost which then makes the SCF product much more profitable than other SME lending products. With the virtue of digitization, profitability will increase. Supply chain financing is not like a term loan product as it has a shorter tenure and much more velocity, so one should figure out how to reduce the cost. To remain competitive in the market, lenders should concentrate more on cost reduction. These are the things that I believe are required to increase the penetration of supply chain finance in Bangladesh.

MBR: What are the prospects of supply chain finance in Bangladesh?

Raja Debnath: Supply chain finance is a way in which you are able to do financing for SMEs. SMEs require loans, so supply chain finance is the product by which lenders can fulfil the needs of the SMEs without taking the entire SME risk. The risk profile of this product is very different from SME financing, which encourages the bankers for funding SMEs at closer to corporates’ risk, which is the beauty of supply chain financing. Because of this, the size of the market in Bangladesh is huge. I believe it has the potential to grow 20 times from now in the next five years. So, I am talking about BDT 40,000 crore portfolio of supply chain finance across the market in the next five years.

MBR: Veefin is the world leader in SCF technology adopting user-led design, data and analytics. Can you please elaborate how Veefin Solutions will help in the supply chain finance market?

Raja Debnath: The supply chain finance solution predominantly has been very expensive as the cost is very high, so it is difficult for smaller banks or lenders to buy the software upfront. That is the core reason why we haven’t seen too much supply chain digitalization globally. So, Veefin has come up with the solution of democratizing supply chain finance by offering a subscription-based solution. Lenders can use the solution, and depending on the business, they have to pay a fee to Veefin. This will allow the lenders who are just entering supply chain finance or who have a minimal portfolio to use the software at a very low cost. This solution will increase the number of players offering supply chain finance in the market From the point of view of lender’s requirements, Veefin aims to reduce the lender’s cost. So, Veefin offers the onboarding solution, the underwriting solution, the transaction management solution (known as supply chain solution) in one single product stack to the lenders. Veefin allows lenders to reduce the number of people running the operation, thus reducing the cost of lenders.

From an innovation perspective, Veefin always launches new products for all parties. One of the latest product that Veefin has launched is Deep-Tier Supplier financing. Deep-tier supplier financing means the lender can not only fund to just one company but also to the whole supply chain. Deep-tier financing gives the solution for the other tiers who are the SMEs under the same approved invoice. Deep-tier supplier finance has the potential to revolutionize the whole market of supply chain finance globally. Without signing any new anchors, just under the suppliers, you have in your books, if you allow those suppliers to onboard their supplier, the book will be triple in size for every lender. In India, the first transaction of the deep-tier transaction will take place in March. After that, we are expecting a lot of global adoption of this solution.

These are the things that are the cutting edge of supply chain finance that are being brought into Bangladesh by Veefin.

MBR: What are the policy development you recommend for flourishing supplier finance business in Bangladesh?

Raja Debnath: Bangladesh Bank has been very supportive of Supply Chain Financing and has recently issued guidelines on local factoring using a digital platform. Think Big Solutions, a Fintech company cofounded by Abul Kasem Khan, Masrur Reaz and me will launch the digital platform for local factoring using Veefin Solutions technology. This is a welcome development for supplier finance in Bangladesh.

There are further changes to regulations/guidelines that can help increase the SCF market potential – 1) SMEs should be financed by discounting their invoices without recourse to SMEs and with recourse on corporates. 2) Bangladesh Bank may come out with specific factoring guidelines allowing lenders to proceed against the Buyers where the SME invoices have been assigned to the Lenders. 3) The SCF market may be expanded by allowing non-lenders like Insurance companies, large corporates, mutual funds, high net worth individuals to come into the market and provide liquidity to discount approved invoices. The requisite guidelines will have to cater to recovery in case of default by the buyers.

These are the three things that I believe can increase the market size of supply chain finance in Bangladesh.