Small businesses account for 40% of exports from emerging markets worldwide, but they are often overlooked by banks, which are more comfortable dealing with established corporate customers. Banks often demand collateral, excessive documentation, and guarantees that are difficult to procure for Small and Medium Enterprises (SMEs) who, as a result, do not get the credit they need to scale their business.
In fact, there’s a $1.5 Tn trade finance gap which exists amongst the SME exporter segment globally
And, this is the gap which new age fintechs are looking to bridge. One such trade finance fintech is Drip Capital.
Drip Capital was founded by Wharton alums and roommates Pushkar Mukewar and Neil Kothari in 2015, with an aim to simplify trade finance for SMEs by providing collateral-free credit. Drip Capital offers technology-enabled solutions to rebuild core parts of international trade finance infrastructure and make underwriting and finance of international B2B transactions seamless for small businesses through the process of invoice factoring/bill discounting. The company is largely focused on the intersection of MSME and export sectors, offering trade finance to SME exporters shipping goods internationally.
Drip Capital’s product cycle is best understood through an example. Take the case of an exporter who does not have bank limit or is maxed out on it and looking for a working capital solution. The exporter can reach out to Drip Capital and fill out a two-minute application form online. Based on the information submitted, Drip analyses the exporter’s eligibility within 24 hours. If eligible, an offer letter is given to the exporter, detailing the terms of the credit arrangement. Once the offer is accepted, Drip Capital undertakes automated risk assessment of the exporter based on various data sources and parameters. The credit facility is eventually set up for the exporter post e-signing of the legal documents.
“To receive finance, the exporter submits soft copies of their invoice and shipping documents on Drip’s online portal. Drip processes the same and transfers funds to the exporter within 12 hours of the invoice submission,” said Mukewar.
At present, the Y Combinator-backed company is working with over 400 SMEs in India and has strategic partnerships with export promotion councils, freight forwarders, shipping lines, other fintech companies and banks.
“Our target segment is primarily SMEs in industries like apparel, processed and packaged food, agro-products, engineering goods, chemicals and pharmaceuticals,” emphasised Mukewar.
Drip Capital is keen to diversify into new product offerings and services in India and other emerging markets around the world. Earlier this year, Drip started its operations in Mexico, and aims to have a more global presence in the coming months.
Backed by marquee investors such as Accel, Sequoia India and Wing VC, the company has secured more than $20 Mn in equity funding to date. According to Mukewar, Drip Capital has financed over $500 Mn worth of exports originating from India.
Despite the rise of alternative lenders, the trade finance gap around the world continues to grow. SMEs form an increasingly important component of global GDP and ensuring their continued development is imperative for governments and other stakeholders. Drip Capital aims to help this become a reality by enabling cross-border trade and building thought leadership in international trade.