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Monis Rahman at DIGIBAP Summit: Digitizing Supply Chain for SMEs

Monis Rahman at DIGIBAP Summit: Digitizing Supply Chain for SMEs

Opening Remarks

Our keynote facilitator for this workshop is Mr. Monis Rahman, co-founder, and CEO of Daraz e-commerce. First of all, I'd like to really thank Hamza Hashmi and the Terbus team. This event was an idea after we saw the circular of the State Bank and realized how important it is to hold an event like this. It's just been amazing how Hamza and the team have executed on this and assembled all of these amazing people in one room. So a round of applause for Hamza Hashmi and the Terbus team, please.

I am very lucky to have on stage with me, Qoram from EasyPaisa. Many of you know him. In terms of supply chain loans and lending, he is probably one of the most experienced individuals in the country. Whoever is in the lending field knows of him and knows of the wonderful things he's doing. You'll learn a lot from him after I brief you on the landscape and tech infrastructure needed for this. Also joining us is Dr. Imran Usmani, famous for his work in Islamic Finance. Most of us have engaged with him and his organization for advice.

The Topic

The topic at hand is digital and retail payment digitization. This workshop is a combination of an overview and a deep dive into intricacies. The common themes reiterated across sessions make my job a bit easier though I might seem redundant. But it shows a consensus of where things are headed.

The Landscape

  • SMEs in Pakistan: 170,000 of 4.5 million SMEs are the numbers we're hearing. It's probably closer to 6.5 million. This constitutes about 2-3% of the total. It's incredibly low.
  • Global Context: IFC estimates that 65 million SMEs in developing countries have unmet financing needs of $ 5.2 trillion annually. This issue isn't unique to Pakistan; it's global.

Supply Chain Complexities

The intricate nature of supply chains poses challenges for lending:

  1. Manufacturer to Retailer: Starts at the manufacturer, goes through distributors, finally reaching the retailer.
  2. Offline Workflows: Distributors and retailers still rely on offline workflows, making the process inefficient and burdensome.
  3. Undocumented Transactions: Lack of documentation and inefficiency in cash management are key issues needing solutions.

Types of Loans

  1. Order Financing: Based on downstream orders.
  2. Inventory Financing: Secured against inventory.
  3. Receivable Financing: Based on outstanding payments.
  4. Reverse Factoring: Initiated by the buyer; claims go back to the buyer.
  5. Distributor Financing: Largest loans, used to buy supplies.

Technology Integration

Building technology to track transactions throughout the supply chain is crucial. This involves:

  1. KYC: Properly establishing the identity of retail store merchants to avoid fraud.
  2. Proof of Payment: Digital channels for cash movement to ensure reliability.
  3. Understanding Goods Basket: What is being bought helps in making low-risk loans.

Our Tech Solution: Duan's Digital Banking Software

Duan builds digital banking software and e-commerce infrastructure to connect retailers, distributors, and manufacturers to embedded financial services. Here's what it includes:

  1. Consumer Level: State Bank's RAS p2m for digital transactions.
  2. Retail Merchant App: Custom banking app allowing easy sales and transactions.
  3. Distribution Management ERP: Digitizes distribution operations, tracking inventory and orders in real-time.
  4. Transactional Banking Portal: Integrates with FM CGs for payments and invoicing.

Value Proposition

  • Banks: Accounts across the supply chain, transaction fees, credit scoring, and lending.
  • FM CGs: Instant digital payments, financing for distributors.
  • Distributors: Digital payments, loans for buying supplies.
  • Retailers: One-stop app for managing finances and buying supplies.

Integration and Collaboration

Collaboration and technology interconnection are vital for this to work. Integrate the software stacks and work together for unified, clean data.

Detailed Architecture

The architecture includes:

  1. Consumer Transactions: Ras p2m scalable tech for payments.
  2. Retail Merchant App: For ongoing business processes, tracking income and expenses.
  3. Distribution Management ERP: Ensuring clean, real-time data.
  4. Transactional Banking Portal: For FM CGs and distributors.

Conclusion

The entire supply chain needs to be digitized. The tools and technology are available now. Let's use them to make a dent in the GDP of the country.

Keywords

  • Digital Supply Chain
  • Retail Payment Digitization
  • SME Lending
  • Financial Technology
  • Integrated Payment Systems
  • Supply Chain Finance
  • KYC
  • Digital Lending
  • E-commerce Infrastructure

FAQ

Q1: What are the primary challenges in digitizing the supply chain? A1: The key challenges include offline workflows, undocumented transactions, and inefficient cash management.

Q2: What kind of loans can be given in the supply chain? A2: Types of loans include order financing, inventory financing, receivable financing, reverse factoring, and distributor financing.

Q3: How can technology aid in lending to SMEs? A3: Technology allows for better KYC, proof of payment through digital channels, understanding the basket of goods purchased, and real-time tracking of transactions.

Q4: What is Duan's role in this digitization effort? A4: Duan provides digital banking software and e-commerce infrastructure to connect various stakeholders in the supply chain to embedded financial services.

Q5: Why is collaboration critical for the success of this initiative? A5: Collaboration ensures that the software stacks are integrated, leading to clean data and unified transaction tracking, thereby lowering the risk and cost of lending.

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