For many micro, small and medium-sized businesses in Southeast Asia, cash flow dominated their lists of concerns during the pandemic. For example, over 85% of MSMEs in Indonesia said they did not have enough cash flow to continue their business if they were faced with a loss of cash inflows by a month, according to a survey conducted between March and May of last year by the Asian Development Bank (ADB).
This puzzle goes hand in hand with the global trade finance gap which reached a record high of $ 1.7 trillion in 2020, up 15% from 2018, due to mounting economic and financial uncertainties. created by the pandemic. In particular, women-owned SMEs reported a funding rejection rate of 70%, another ADB study find.
Piyush Gupta, the founder of blockchain-based service provider Polytrade, a division of Hong Kong-based financial advisory firm Riquera Capital Group, has witnessed the difficulties borrowers face. In 2014, he launched Riquera Capital to provide invoice financing to MSMEs in the region.
âIn the first two years of running the business, I was so surprised to see many brilliant companies that were unable to get enough working capital from banks or trade finance companies. local simply because of the lack of exposure, âGupta said. Some of Riquera Capital Group’s clients provide services or products to multinational brands such as Walmart, Ikea and Nike, he said.
B2B transactions typically take up to 43 days to settle, according to a report by commercial credit insurer Atradius. Invoice financing allows suppliers and manufacturers to borrow money on unpaid invoices through a third-party lender such as a bank or financial institution. This shortens their working capital cycle and improves cash flow.
âFor MSMEs, the only collateral available in trade finance is their invoice or receivables. This proves that the company has sold the goods and is awaiting payment from its suppliers or customers, âGupta said. In 2020, Riquera Capital Group accumulated a base of 5,000 borrowers who financed more than 250 companies with a cumulative capital of $ 500 million.
Polytrade was founded in the first quarter of 2021 as a step forward in Gupta’s goals. The platform seeks to make bill financing easier by connecting companies with crypto investors. “The whole concept of decentralization is that anyone who seeks funding can participate, and anyone who wants to fund can participate as well,” Gupta said.
Although an array of DeFi lending platforms have emerged in recent years, including Aave, Compound, and Uniswap, there are only a few players in the bill finance segment, including in Australia. Invox Finance and based in Dubai InvoiceMate. Polytrade is preparing to go into production by mid-January 2022 and wants to be a major competitor in this space.
The platform raised $ 1.2 million in May from investors like Sandeep Nailwal, co-founder and CEO of the Polygon blockchain scalability platform. Other backers include Master Ventures and Orion Protocol.
Southeast Asia is a primary target for Polytrade, according to Gupta. He said the company was in talks with a ânotable trade finance companyâ in Indonesia for a potential partnership. At the same time, he mentioned his intention to leverage the existing network of clients and investors of Riquera Capital Group to join the platform.
The company is also targeting the Latin American market. In October, Polytrade signed a partnership with Miami-based trade finance startup Marco Financial to roll out lines of credit in Latin America.
How does Polytrade work?
Polytrade allows investors to earn interest on their principal deposited on the Polytrade platform through stablecoins, including Tether and USD coins, or through the company’s Trade token. On the other hand, borrowers can quickly access cash by selling their bills at a discount on Polytrade.
The platform, which has been operating in beta mode since October 1, is structured in three portals. The first portal allows lenders to invest their crypto assets in a combined liquidity pool managed by Polytrade to make loans. The annual yield on stablecoins will be 5% to 6%, while the company will pay an interest rate of 10% on deposits made through trading tokens, according to Gupta.
A second portal allows MSMEs to apply for loans by submitting their invoices and supporting âknow your customerâ (KYC) documents. The loans will be made in US dollars and transferred to borrowers by Polytrade, Gupta said. âCrypto liquidity will ultimately be lent out in the real world, as the crypto is converted into fiat currency for borrowers,â Gupta said.
The third portal allows buyers of services and goods from MSMEs to pay their bills to Polytrade in fiat currency, Gupta added. Polytrade’s main income stream will be generated by a net interest margin on the financed invoice. Gupta has confirmed that all three portals are expected to officially launch by January 15, 2022.
Safety the top priority
While DeFi platforms like Polytrade can help open up access to finance for individuals and MSMEs, they could also be subject to hacks and data breaches. For example, Poly Network, a DeFi platform that allows users to move tokens across blockchains, suffered a landmark breach that emptied $ 613 million from its vaults in August, though the hacker later returned almost all of the stolen assets, according to the company.
Recent notable hacks also involved the Visor Finance liquidity protocol, which lost nearly $ 1 million on November 28. A few weeks ago, the DeFi AutoShark Finance protocol suffered over $ 2 million in losses on October 29, while the Cream Finance loan protocol lost $ 130 million in assets on October 27, according to The data from the blockchain security company SlowMist.
Gupta said security is of the utmost importance to the business. âWe’ve seen so many hacks recently. Hackers are smarter than businesses because they have a lot more time and tools to play with. He revealed that Polytrade is set to launch a bug bounty program with cash rewards for anyone wishing to test the platform for vulnerabilities and bugs.
âWe hire the best security auditing companies to make sure smart contracts are waterproof,â Gupta said.
He remains confident about the invoice finance industry and its development alongside blockchain. Polytrade also recently launched an invoice management product called Polytrade Meta, which aims to help businesses process invoices and corporate payments in the metaverse space. Gupta did not reveal details of the new platform, but said Polygon would be the company’s first customer.