Supply Chain Finance in SMEs A Conceptual Analysis

Abstract

This paper addresses the relatively new concept of supply chain finance (SCF) and its application in SMEs. The flow of financial resources in supply chains is most important and has become the focus of study. As a result, the integration of finance and supply chain management has opened new business areas for banks as well as financial and logistics service providers. Supply Chain Finance solution can create a 'win-win' situation for both buyer and supplier. So this research article focuses on the study of supply chain finance (SCF) in SMEs.

Despite the fact that small and medium-sized enterprises (SMEs) in India account for over 62 million jobs and approximately 30 percent of the country's GDP, the great majority of them lack access to affordable loans from traditional banks. They are so often left with little choice but to resort to informal lenders, who charge usurious interest rates in order to meet their borrowing demands. Small and medium-sized enterprises (SMEs) are particularly vulnerable to the negative effects of the credit gap, which include but are not limited to higher costs, lower profits, slower growth, and a lack of resilience in the face of economic volatility (Iyer, 2021). Here, supply chain financing (SCF) could be helpful in bridging the trust gap by equipping lenders with more resources to manage credit risk and broadening the scope of financing to include vast pools of poorly understood MSMEs. SCF provides buyers and sellers with risk mitigation solutions based on technological advancements in order to reduce financing costs and increase company efficiency. Since SCF is still in its infancy, there is a pressing need to make this facility accessible to the vast majority of MSMEs so that they, in turn, can benefit from the positive effect it has on the performance of currently-adapted firms.