India’s economy, which relies heavily on small and medium enterprises (SMEs), has increasingly turned to supply chain finance (SCF) as a critical mechanism to improve liquidity and operational efficiency. In 2024, supply chain finance has become even more crucial as businesses recover from global economic shifts and a post-pandemic world. It allows firms to maintain liquidity and cash flow, essential in managing delayed payments and operational costs, particularly for SMEs.
As of 2024, the SCF market in India is assessed to be worth around $10 billion, with double-digit growth projected over the next five years. This blog will explore SCF’s latest trends, challenges, and future outlook in India, providing insights to investors, financial professionals, and tech enthusiasts.
Key Trends in Supply Chain Finance in India
- Expanding Role of Digital Platforms
The rise of fintech platforms dedicated to SCF has opened up new opportunities for businesses to access financing options more quickly and with greater transparency. Digital platforms utilising artificial intelligence (AI) and machine learning (ML) automate credit risk evaluation and transaction history analysis. In 2024, fintech platforms in India have reduced transaction processing time by nearly 40% compared to traditional banks.
Case Study: A Leading E-Commerce Industry In the e-commerce sector, a company has implemented an AI-driven SCF platform that assesses the creditworthiness of its suppliers in real time. This led to 50% faster loan approvals, helping thousands of small sellers manage cash flow and increase order volumes.
- Blockchain for Transparency and Security
Blockchain technology is gaining traction within SCF, offering real-time verification of supply chain transactions, enhancing transparency, and reducing fraud. Significant sectors like manufacturing and retail in India are adopting blockchain-based SCF solutions. By 2024, blockchain adoption in Indian SCF platforms will account for 30% of transactions across large-scale industries.
Table: Blockchain Adoption in SCF (2024)
| Industry | Blockchain Adoption (%) |
| Manufacturing | 35% |
| Retail | 28% |
| Agriculture | 18% |
| FMCG | 20% |
- Integrated Supplier Financing Models
A growing trend in India is the integration of SCF with broader working capital management systems, providing holistic financial solutions for businesses. This trend is prominent in sectors such as manufacturing and FMCG, where integrated supplier financing models allow primary and secondary suppliers to receive financing. This results in a 20% improvement in working capital utilisation across industries.
Case Study: Manufacturing Sector A large Indian manufacturer adopted an integrated SCF model, which includes primary suppliers and sub-suppliers. This resulted in faster payments across all levels, reduced delivery delays, and enabled timely production targets.
- Government Support and Regulation
The Indian government recognises the importance of SCF and has introduced initiatives such as the Trade Receivables Discounting System (TReDS), which facilitates MSMEs in accessing funds through discounting their trade receivables. In 2024, the government announced a new set of reforms aimed at simplifying the SCF process and making it more accessible for small businesses. As a result, the volume of discounted receivables on TReDS has increased by 15% year-on-year.
- Climate Finance Integration
The move towards sustainable financing is gaining momentum in India, with SCF integrated into climate finance initiatives. The Indian government and private institutions are working towards implementing SCF solutions that promote sustainability and green supply chains. By 2024, 15% of SCF in India is expected to be linked to sustainability goals, with more focus on industries like agriculture and renewable energy.
Table: Growth in Sustainable Supply Chain Finance (2024)
| Year | SCF Linked to Sustainability (%) |
| 2022 | 5% |
| 2023 | 10% |
| 2024 | 15% |
Challenges Facing Supply Chain Finance in India
- Uneven Access Across Regions
One of the biggest challenges facing SCF in India is its uneven access, particularly for businesses in rural areas or Tier-3 cities. Many MSMEs in these regions are unaware of the financial tools available or lack the infrastructure to implement digital SCF solutions. In 2024, 40% of Indian businesses still rely on traditional financing methods due to limited SCF adoption in non-urban areas.
- High Transaction Costs for Smaller Enterprises
Despite SCF’s advantages, smaller enterprises often face high transaction fees, which deter them from fully leveraging SCF platforms. Transaction costs for MSMEs can be up to 3% higher than those for larger corporations, making SCF less attractive for businesses operating on thin margins.
- Resistance to Digital Transformation
While digital platforms are becoming more common, a significant portion of MSMEs are resistant to adopting them. Businesses in traditional sectors, such as textiles or agriculture, still rely on paper-based processes, slowing down SCF adoption. As of 2024, 45% of MSMEs in India have yet to implement any form of digital SCF.
- Complex Credit Risk Assessments
Credit risk continues to be a significant barrier to SCF growth. The fragmented nature of India’s supply chains and the need for comprehensive data on MSMEs make credit risk assessments challenging for lenders. Financiers are often cautious about extending SCF to businesses without a strong credit history, resulting in limited financing for small suppliers.
Case Study: Agriculture Sector, A food processing company in the agriculture sector, faced issues securing SCF due to the variable nature of its supply chain and seasonal fluctuations in demand. The high credit risk associated with suppliers in rural areas led to delayed financing, which affected production schedules.
- Lack of Industry-Wide Standardization
India’s SCF landscape is still evolving, and the need for more regulations, processes, and documentation standardisation has created inefficiencies. Different industries and sectors follow diverse practices, resulting in delays and confusion in financing processes. Establishing a uniform regulatory framework could help mitigate these issues.
Future of Supply Chain Finance in India
- AI and Predictive Analytics for Risk Mitigation
In 2024, artificial intelligence (AI) and predictive analytics will become essential tools for mitigating risks in supply chain finance. AI-powered platforms help lenders assess borrowers’ creditworthiness by analysing historical data and predicting future payment behaviour. This is particularly beneficial in high-risk industries like agriculture, where forecasting future trends can prevent potential losses.
- Integration with E-Invoicing and GST Networks
With India’s e-invoicing system and GST network expanding in 2024, SCF is being integrated into these platforms for greater transparency and efficiency. This integration allows lenders to verify invoices in real-time, reducing fraud and improving payment cycles. According to recent data from the GST Council, the use of e-invoicing has decreased invoice disputes by 30%.
- Increased Collaboration Between Banks and Fintechs
As SCF evolves, traditional banks and fintech companies collaborate more closely to offer comprehensive SCF solutions. Banks bring their existing customer base and trust, while fintech provides the technology to enhance processes. In 2024, 40% of SCF deals in India will involve collaboration between banks and fintech platforms, offering more robust solutions to businesses.
- Cross-Border Supply Chain Finance
India’s export sector is increasingly adopting SCF to manage cash flow challenges associated with international trade. In 2024, cross-border SCF platforms will be introduced to provide export-oriented businesses with financing solutions tailored to the complexities of global trade. According to industry reports, this has enabled Indian exporters to reduce payment delays by 25%.
Table: Growth of Cross-Border SCF (2022-2024)
| Year | Growth Rate (%) |
| 2022 | 15% |
| 2023 | 20% |
| 2024 | 25% |
- Multi-Tier Supply Chain Finance
In 2024, multi-tier SCF is gaining momentum, enabling even second—and third-tier suppliers to benefit from financing solutions. This has been particularly transformative for the automotive and consumer goods industries, where supply chains are extensive and involve numerous smaller suppliers. Multi-tier SCF improves cash flow across all supply chain tiers, reducing production bottlenecks.
Case Study: Automotive Industry In the automotive sector, a company implemented multi-tier SCF, providing financing to its direct suppliers and smaller sub-suppliers. This led to a 15% improvement in production efficiency, as smaller suppliers could maintain their production schedules without liquidity constraints.
Practical Tips for Leveraging Supply Chain Finance
- Adopt AI-Driven Solutions: Utilise AI tools to predict supply chain disruptions and assess suppliers’ credit risk. AI can help businesses better manage their working capital needs.
- Partner with Fintech Platforms: Consider collaborating with Fintech platforms for faster and more flexible financing options. Fintechs offer customised solutions tailored to your business’s unique needs.
- Implement Multi-Tier Financing: If your business operates within a complex supply chain, explore multi-tier SCF solutions to ensure all suppliers, even sub-suppliers, benefit from financing.
- Optimise Invoice Management: Leverage e-invoicing to reduce disputes and payment delays. By integrating SCF into e-invoicing systems, you can improve the speed and transparency of transactions.
- Monitor Regulatory Changes: Stay current with the latest regulations related to SCF, particularly those affecting cross-border trade and tax compliance. Regular consultations with financial advisors can help you stay compliant.
Wrap up
Supply chain finance is set to play a transformative role in India’s financial landscape in 2024 and beyond. Adopting digital platforms, AI-driven risk assessments and blockchain technology is pushing the boundaries of how businesses manage cash flow and improve operational efficiency. Despite challenges such as credit risk, high transaction costs, and regulatory hurdles, SCF offers immense potential, especially for MSMEs that are the backbone of India’s economy.
Businesses across sectors can unlock new growth opportunities and enhance their supply chain efficiency by adopting new technologies and staying attuned to emerging trends. As SCF continues to evolve, it will undoubtedly remain a critical tool for companies looking to steer the complexities of the modern supply chain.
For businesses looking for the most effective supply chain finance solutions, CashnTech provides the best Supply Chain Finance Services in India. It offers innovative, technology-driven solutions to unlock working capital and enhance business growth.
FAQs
- What is supply chain finance (SCF)?
SCF allows businesses to optimise cash flow by enabling early payments to suppliers and extended payment terms for buyers.
- Why is SCF important for MSMEs?
SCF is crucial for MSMEs as it helps them manage cash flow by providing quick access to funds in receivables or inventory.
- What are the current trends in SCF in India?
Key trends include blockchain integration, AI-driven risk assessments, and the rise of multi-tier supply chain finance solutions.
- What are the challenges facing SCF in India?
Challenges include limited access for rural businesses, high transaction costs for MSMEs, and regulatory complexities.
- How can businesses leverage SCF?
Businesses can leverage SCF by adopting digital platforms, collaborating with fintech companies, and using multi-tier financing to benefit all levels of their supply chain.
CA Mohit Dhand specializes in delivering strategic risk assurance, consulting, and fintech solutions, empowering organizations to achieve sustainable success. With a strong background in finance and technology, Mohit is passionate about guiding businesses through complex challenges, ensuring growth and innovation.
