NBFCs and fintechs catering to MSMEs are seeing higher working capital demand as borrowers build inventory and capabilities in anticipation of higher sales during the festival season.

The optimism about consumption is being driven by the fact that this is the first “normal” festival season post-pandemic. The Indian festival season is typically considered to begin with Ganesh Chaturthi in August and go on till Diwali, with some spillover till Christmas.

“The retail community expects consumer demand during the festival season to be at pre-Covid levels. MSMEs tend to stock up inventory pre-festive season, for which they need short-term working capital,” said Amit Mande, chief revenue officer at UGRO Capital.

Higher demand for credit

Credit demand is largely for supply chain and merchant finance, particularly in retail segments such as IT and enabled services, textiles and apparel, e-commerce and mobility solutions, industry participants said.

“In the food segment too, as it is also coinciding with the harvest season, we’re seeing a lot of demand across this space,” said Debarshi Dutta, co-founder and CEO of Ayekart.

Given that everyone, including creditors, are stretched for capital during this period, merchants are also seeking funds to repay creditors so that they can get 3-4% cash discounts by servicing their obligations on or before time.

Higher sales during festival season

Typically, credit access to MSMEs has been backed by financials or collateral, forcing them to take 2-3-year long-term loans. The scenario is now changing with more access to data such as the volume of e-commerce sales, receivables from payment systems, and overall purchase and sales trends, according to industry players.

“Cash-flow based credit assessments and alternate data-backed risk models allow new age players like ours to service this need with 30-90 day short-term products,” Mande said, adding that the data helps them establish and estimate credit requirements and repayment abilities.

Manish Lunia, co-founder of Flexiloans.com, said the company is doing 1.5 times more business this season. This month we have received more than 1.75 lakh leads as against an average of 1-1.2 lakh,” he said, adding that 55 per cent of these merchants are from tier-2 to tier-4 towns and cities.

E-commerce platform driving growth

The expectation of higher sales is supported by the strong demand trends being seen across the ongoing festival sales of e-commerce platforms. This is increasing business for both product suppliers and service providers such as logistics and distribution partners, industry players said.

Others added that e-commerce platforms also offer festival-related offers to merchants while allowing lenders to reach out to the same merchants again in addition to new borrowers, thus aiding higher sales and credit demand.

“About $12 billion e-commerce sales are expected to happen, and we’re seeing this on our own platform too. Currently, we disburse Rs 1,000-1,200 crore of working capital per month, but we see this going up to ₹3,000-3,500 crore,” said Ram Kewalramani, co-founder and MD of CredAble.

Lunia added that Flexiloans has seen a 300 per cent increase in leads via the e-commerce ecosystem, which is expected to translate into three-fold disbursals too, during the period.

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