The Indian trade finance market is expected to grow at a steady pace, with a CAGR of over 6% by 2027, as anticipated by Mordor Intelligence. Trade finance, also known as export finance, refers to the financial products and services that organisations use to facilitate global trade and commerce. It plays a vital role in providing funding to Indian business houses, and unlike traditional loan facilities, the rate of default in trade finance is minimal, as it is based on the debtor’s business strength and past record.
The International Financial Services Centres Authority (IFSCA) is playing a significant role in promoting India’s trade and transaction capabilities. The establishment of the IFSCA has led to the creation of a digital supply chain financing platform, which has made it easier for businesses to access international trade and finance sales. This international financial platform has opened up a range of opportunities for Indian businesses to engage with global trade.
Supply chain finance is a crucial aspect of trade finance, as it facilitates the management and financing of working capital. With the advent of digital supply chain financing platforms, businesses can now manage their working capital more effectively by leveraging supply chain finance solutions. Such platforms offer businesses an array of supply chain finance options, enabling them to optimise their cash flow analysis, improve their working capital management, and minimise the risks associated with supply chain finance.
In the past, traditional banking and financial institutions were the primary providers of supply chain finance. However, with the rise of digital supply chain financing platforms, new players have entered the market, providing businesses with innovative supply chain finance programs. These supply chain finance companies offer a range of financial institution services, such as vendor finance, dealer finance, and factoring, to help businesses manage their working capital more effectively.
The Indian trade finance market is increasingly adopting new technologies such as blockchain, artificial intelligence, machine learning, and the Internet of Things. These technologies are transforming the trade finance market in India, making it more efficient and accessible. The IFSCA has also implemented the International Financial System Code (IFSC), which has enabled Indian businesses to engage with international trade more effectively.
The adoption of digitalization has been a significant driver of growth in the Indian trade finance market. The Indian government’s push for digital public roadways has created new opportunities for businesses to leverage digital supply chain financing platforms. Mobile phone penetration in India is over 100%, with more than half the population using smartphones. This has enabled businesses to interact directly with their customers, providing them with a seamless consumer experience.
The Micro, Small, and Medium Enterprises (MSMEs) segment is a crucial driver of growth in the Indian trade finance market. MSMEs frequently have limited access to short-term financing, making it difficult for them to engage in international trade. Trade finance has enabled MSMEs to bridge this financial gap, providing them with the necessary operating capital to import or export goods and services. The adoption of trade finance by MSMEs has also enabled them to mitigate the risks associated with international trade.
Overall, the adoption of new technologies, the development of digital supply chain financing platforms, and the growing use of trade finance by MSMEs are all contributing to the India Trade Finance Market’s potential for sustained expansion. The trade finance sector in India is expected to improve in efficiency and open up to a wider spectrum of enterprises as long as companies continue to use supply chain finance solutions to manage their working capital.