The changing face of lending

There are fundamental changes taking place in the lending arena. IBSi FinTech Journal spoke to Encore Theme Technologies managing director and CEO R K Kanthimathinathan to get some insights from one of the most dynamic new players in the market.   

Bill Boyle
Senior Editor

In the corporate lending space, the big topic in the market today is Supply Chain Finance lending; this is lending where we are talking about blockchain as a useful technology in the supply chain finance space. “The primary party we call the ‘anchor’ party,” says Encore Theme Technologies’ managing director and CEO R K Kanthimathinathan. “They have their suppliers and they have the banks, who are the suppliers of the credit facilities to the anchor party. They fund the invoicing once the purchase order is released from the anchor party. They fund the manufacturing sub-contractors on the side of Supply Chain Finance. “The other side of the Supply Chain Finance is the dealer finance, in which the anchor party would give their guarantee to the dealer finance.

The most important thing is the digital platform because the financing is done at the invoicing level or at a purchase order level as the purchase order gets automatically uploaded into the digital platform. So is the invoice along with the delivery note. It gets updated and matched along with the purchase, so this becomes a very quick process for all parties to complete the lending cycle. This is without any intervention – we are talking about straight-through processing.” Most banks, especially for the supply chain – where they talk about the blockchain use – were doing tier one lending to the anchor parties.

“Now, the banks have started lending to the sub-contractor’s sub-contractor, for example, take a car manufacturer as an example, “says Kanthimathinathan. “So a car manufacturer in India has given a sub-contract to a diesel tank manufacturer. In turn, the diesel tank manufacturer has awarded another sub-contract for the nozzle manufacturing for the diesel – that is a tier two award. At the moment, all these banks are funding the tier one because there is a clear connectivity established between the anchor party and the tier one because they want to protect the tiered pricing visible to the tier one. Therefore, that whole supply chain was not completed because of all these restrictions in terms of visibility of data and access to data. Now, blockchain can prove the veracity of the transactions – in fact, we have done a PoC of the blockchain in this lending model.

“We are able to do this multi-tier lending in which the data is secured and redundancy of the data is proven but also access to the data is limited to the tier one vendors when it comes to the values and data is not available to the anchor party but is for the banking side, so that the whole chain gets completed. Therefore, the advent of this digital lending platform in the corporate side is giving a world of opportunity to the supply chain finance side and the real impact of the lending is coming to place – it is straight-through processing for the anchor parties. The correct facility is being indirectly utilised by the whole financial supply chain.

From the car dealer side, based on the demand supply, a complete Supply Chain Finance is created and the visibility of the manufacture inventory available for the dealer side is present to the end user. That is from the dealer side to the retail side of the market; to the end users the sale of the car is completely tracked because the complete demand visibility is there and they are able to leverage the complete credit facility through the digital lending platform.”

Kanthimathinathan continues: “The end-to-end visibility is given more comfort for the credit feasibility study at each of these stages in the lending cycle. And also, the bank is able to leverage the whole cycle starting from the retail side until the last mile of the sub-contractor who is manufacturing it to the tier one contractor and giving it to the assembly line. The complete gamut of the transaction is covered in a single program on an online STP-based lending platform. This is what the power of a lending platform can provide today.”

The fact is that at every stage people are able to use the same program. In India, it is getting extended to another level. The Reserve Bank of India was given a special DSC license for the invoicing platform where any bank can get into the platform of this particular NBC unit, and they can offer their credit facility for the other invoice level for a specific program. At the invoice level, five major banks can bid for the same invoice to extend the credit facility to that particular supplier to the anchor party without a digital lending platform.

“This was never possible before and is only now possible because of the digital learning platform today,” says Kanthimathinathan. “And because of the technology that is available in the market today. And also if you look at our platform, we have ensured that our editing interface – in which we interface with major ERP providers such as Oracle SAP and also the smaller ones such as Tally, which is very famous in India – is integrated with those ARPs directly. Therefore, the purchase orders created in the area system get automatically uploaded into the platform as well as the invoice; the release notes get automatically interfaced and uploaded into the digital lending platform. Therefore, this makes us more robust and the facility is available for the end user within a matter of a few minutes.

As long as it gets validated across each of these cycles – since it’s almost an automated process across the end-to-end Supply Chain Finance system – it comes back to the lending platform at the corporate side where the digital lending platform is being utilised both by the banks and by the financial institutions.” Kanthimathinathan says: “Supply Chain Finance is also taking a good shape with a good interface to the Swift services across the cross borders. This is happening in the lending platform in India, Middle East and Africa where we are operating predominantly. And I see this market growing in the corporate lending space, especially backed by a good workflow and document management system. It is a strong system that can do bulk uploads of purchase orders or invoices.

Integration with its in-house ERP systems is present; the platform is robust enough to handle these things. And it ensures that online corporate lending for Supply Chain Finance is instant. Everybody is into this particular space. It comes to the financial institutions more and everyone is looking at a robust platform. And we believe that banks are moving into this area. Already, we have more than six Supply Chain Finance fees, for which we have auto switcher; four of them are live customers today. And they are using the system very much. As I said, the blockchain technology getting implemented will ensure the multi-tears supply chain financing which is not predominantly available today in the market because of the access and visibility to the data will also be available because of this blockchain technology. This is what we are seeing in the corporate side of it.

“We are very much vertical focused; we are not calling ourselves a lending platform company, we are calling our software a Supply Chain Finance vertical. And when we are in the supply chain finance itself, we have multiple sub-verticals; that is how we work in the auto industry, the pharma industry, and the white goods industry. “With each of these areas, the whole supply chain workflow, and the rules of the games are different when it comes to the credit financing. Therefore, we are completely vertical focus. And that is what we believe is our differentiator in the market. We don’t just talk lending; we talk specifics.”

Kanthimathinathan sees his business expanding. “We have two markets into which we want to expand. We have tested the waters in Africa. We have looked at the market in Nigeria and we are also looking at expanding in the Far East, especially markets like Vietnam, Cambodia and Indonesia. These are all the areas that we are looking at expanding into. We want to conquer one region after other. We are proud that being an early startup for the last three years into the lending space, we are expanding well. We feel that the next two years we will be able to cover these regions then move on.”

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