A PROJECT ON

Understanding Purchase order finance with specific focus on GeM Sahay

Introduction

Purchase order, or, PO financing is an arrangement where a third party agrees to give a supplier enough money to fund a customers purchase order.

If one finds that he needs to purchase items from suppliers before fulfilling a customer order, then purchase order financing might be a good option. Typically, the types of businesses that might use PO financing include:

• Distributors
• Outsourcers
• Resellers
• Wholesalers
• Businesses with heavily seasonal sales patterns
• Businesses with tight cash flow and a need to purchase materials before fulfilling orders

Micro, Small, and Medium Enterprises (MSMEs) often require Purchase Order (PO) Finance due to several reasons:

Working Capital Constraints: MSMEs often face cash flow issues, especially when they receive large orders. They may lack the necessary funds to fulfill these orders upfront, which can hinder their ability to grow and compete effectively.

Lack of Collateral: Traditional lenders may be hesitant to extend credit to MSMEs due to their limited assets or lack of collateral. PO financing provides an alternative source of funding that is based on the strength of the purchase order itself rather than the company's assets.

Opportunity for Growth: Accepting large orders can be a significant opportunity for MSMEs to expand their business and increase their market share. However, without access to sufficient funds, they may have to turn down these opportunities. PO financing allows them to accept these orders and fulfill them without straining their cash flow.

Seasonal or Cyclical Business: Some MSMEs operate in industries that experience seasonal fluctuations in demand. During peak seasons, they may receive more orders than usual, requiring additional funds to fulfill them. PO financing provides the necessary liquidity to manage these fluctuations effectively.

Supplier Payment Terms: Suppliers often require payment upfront or within a short timeframe, while MSMEs may need more time to produce or acquire the necessary goods. PO financing bridges this gap by providing the funds needed to pay suppliers upfront, ensuring smooth order fulfillment.

Creditworthiness: MSMEs, especially newer or smaller ones, may have limited credit history or may not meet the stringent credit requirements of traditional lenders. PO financing relies on the creditworthiness of the buyer rather than the seller, making it accessible to a broader range of businesses.

Overall, PO financing offers MSMEs a flexible and accessible financing option that enables them to take advantage of growth opportunities and manage their cash flow effectively.

Purchase orders (POs) serve as legally binding documents that outline the terms and conditions of a transaction between a buyer and a seller. While the specifics can vary depending on jurisdiction and the agreements between the parties involved, there are several key aspects that contribute to the legal sanctity of purchase orders:

Offer and Acceptance: When a buyer issues a purchase order to a seller, it is considered an offer to buy goods or services at specified terms and conditions. The seller accepts this offer by acknowledging and agreeing to the terms outlined in the purchase order. This mutual agreement forms the basis of a legally binding contract.

Specification of Goods or Services: Purchase orders typically include detailed descriptions of the goods or services being purchased, including quantities, specifications, prices, and delivery dates. By accepting the purchase order, the seller agrees to provide the specified goods or services as outlined in the document.

Terms and Conditions: Purchase orders often include terms and conditions that govern the transaction, such as payment terms, delivery terms, warranties, and dispute resolution mechanisms. These terms are legally binding upon acceptance by both parties.

Confirmation and Acknowledgment: Upon receiving a purchase order, the seller typically confirms acceptance by acknowledging the order and indicating their agreement to the terms and conditions specified therein. This acknowledgment may be in the form of a signed document, an electronic confirmation, or other means of communication.

Evidence of Agreement: Purchase orders serve as tangible evidence of the agreement between the buyer and seller. In the event of disputes or discrepancies, the purchase order can be used to demonstrate the terms and conditions that were agreed upon by both parties.

Enforceability: If either party fails to fulfill their obligations under the purchase order, the aggrieved party may seek legal remedies for breach of contract. This could include seeking damages, specific performance (forcing the other party to fulfill their obligations), or other appropriate remedies available under contract law.

Purchase Order Finance Market

The Top 10 Industries in India issuing Purchase Orders to MSMEs:

Textiles and Apparel: India's textile and apparel industry is one of the largest contributors to the country's economy, providing employment to millions of people. MSMEs play a significant role in this sector, supplying fabrics, garments, and related products.

Automotive: The automotive industry in India is experiencing steady growth, with increasing demand for passenger vehicles, commercial vehicles, and two-wheelers. MSMEs are involved in manufacturing components, parts, and accessories for automobiles.

Food Processing: India's food processing industry is growing rapidly, driven by changing consumer preferences, urbanization, and increasing disposable income. MSMEs contribute to this sector by supplying ingredients, packaging materials, and machinery.

Electronics and Electrical Equipment: With the rise of digitalization and technological advancements, the demand for electronics and electrical equipment is on the rise in India. MSMEs play a crucial role in manufacturing components, circuit boards, and other electronic devices.

Construction and Infrastructure: India's construction and infrastructure sector is booming, driven by government initiatives such as Smart Cities Mission and Housing for All. MSMEs supply materials, equipment, and services for construction projects.

Chemicals and Pharmaceuticals: India's chemicals and pharmaceuticals industry is a key contributor to the country's GDP and exports. MSMEs are involved in manufacturing specialty chemicals, pharmaceutical ingredients, and formulations.

Information Technology (IT) and IT-enabled Services (ITES): India is a global hub for IT and ITES services, with a thriving ecosystem of MSMEs providing software development, IT support, and business process outsourcing (BPO) services.

Handicrafts and Handlooms: India has a rich tradition of handicrafts and handlooms, with a diverse range of products including textiles, pottery, woodwork, and metalwork. MSMEs play a vital role in preserving and promoting traditional crafts.

Healthcare and Pharmaceuticals: The healthcare and pharmaceuticals sector in India is experiencing significant growth, driven by factors such as rising healthcare expenditure, increasing prevalence of chronic diseases, and growing demand for generic drugs. MSMEs contribute by supplying medical devices, equipment, and pharmaceuticals.

Agribusiness and Agro-processing: Agriculture is a primary source of livelihood for a large portion of India's population. MSMEs are involved in agribusiness activities such as food processing, packaging, storage, and distribution of agricultural products.

The Top 5 Companies in Each of These Industries Issuing Purchase Orders to MSMEs, Along with Annual Procurements and Procurements from MSMEs:

1. Textile and Apparel Industry:

Reliance Industries Limited (Textiles Division):

• Annual Procurements: Reliance Industries Limited (Textiles Division) procures a substantial amount of raw materials, machinery, and services annually for its textile manufacturing operations.
• Procurements from MSMEs: Reliance Industries Limited has been actively sourcing from MSMEs for various products and services, including textiles, machinery components, and packaging materials.

Aditya Birla Fashion and Retail Limited:

• Annual Procurements: Aditya Birla Fashion and Retail Limited, with its diverse portfolio of brands, procures a significant amount of textiles, garments, and accessories annually.
• Procurements from MSMEs: Aditya Birla Fashion and Retail Limited sources a considerable portion of its products and services from MSMEs, including fabric suppliers, garment manufacturers, and accessory suppliers.

Arvind Limited:

• Annual Procurements: Arvind Limited, a leading textile manufacturer in India, procures raw materials such as cotton, yarn, and chemicals, as well as machinery and equipment for its textile operations.
• Procurements from MSMEs: Arvind Limited has been known to source a substantial portion of its raw materials and services from MSMEs, supporting local suppliers and manufacturers.

Welspun India Limited:

• Annual Procurements: Welspun India Limited, a major player in the home textiles sector, procures raw materials such as cotton, polyester, and other fibers, as well as machinery and equipment for its manufacturing facilities.
• Procurements from MSMEs: Welspun India Limited collaborates with MSMEs for the supply of various materials and services required for its textile production processes.

Vardhman Textiles Limited:

• Annual Procurements: Vardhman Textiles Limited, one of the largest integrated textile manufacturers in India, procures raw materials such as cotton, yarn, and chemicals, as well as machinery and equipment for its textile mills.
• Procurements from MSMEs: Vardhman Textiles Limited has a significant network of MSME suppliers for various inputs and services, including cotton suppliers, yarn spinners, and auxiliary service providers.

1. Automotive

Maruti Suzuki India Limited:

• Annual Procurements: Maruti Suzuki India Limited, the largest automobile manufacturer in India, procures a significant amount of components, parts, and raw materials annually for its vehicle production.
• Procurements from MSMEs: Maruti Suzuki India Limited actively engages with MSMEs for the supply of various components, parts, and services required for its vehicle manufacturing operations.

Tata Motors Limited:

• Annual Procurements: Tata Motors Limited, one of the leading automobile manufacturers in India, procures a substantial volume of components, parts, and materials annually for its diverse range of vehicles.
• Procurements from MSMEs: Tata Motors Limited has a strong network of MSME suppliers for various automotive components, including engine parts, chassis components, and electrical components

Mahindra & Mahindra Limited:

• Annual Procurements: Mahindra & Mahindra Limited, a prominent player in the automotive sector, procures components, parts, and materials for its vehicles, including utility vehicles, tractors, and commercial vehicles.
• Procurements from MSMEs: Mahindra & Mahindra Limited collaborates with MSMEs for the supply of automotive components, raw materials, and ancillary services required for its vehicle manufacturing operations.

Bajaj Auto Limited:

• Annual Procurements: Bajaj Auto Limited, a leading manufacturer of motorcycles and three-wheelers in India, procures components, parts, and materials for its two-wheeler and three-wheeler production.
• Procurements from MSMEs: Bajaj Auto Limited sources a significant portion of its components and parts from MSMEs, including suppliers of engine components, chassis parts, and electrical components.

Hero MotoCorp Limited:

• Annual Procurements: Hero MotoCorp Limited, the world's largest manufacturer of two-wheelers, procures a substantial volume of components, parts, and materials for its motorcycle production.
• Procurements from MSMEs: Hero MotoCorp Limited engages with MSMEs for the supply of various components and parts required for its motorcycles, including engine components, body parts, and electrical components.
  
  

3. Food Processing

Nestl India:

• Annual Procurements: Nestl India, one of the largest food and beverage companies in India, procures a significant volume of raw materials, ingredients, packaging materials, and services annually for its diverse range of food products.
• Procurements from MSMEs: Nestl India actively engages with MSMEs for the supply of various raw materials, ingredients, packaging materials, and services required for its food processing operations.

Britannia Industries Limited:

• Annual Procurements: Britannia Industries Limited, a leading player in the bakery and dairy segments, procures raw materials, ingredients, packaging materials, and services for its production of biscuits, cakes, dairy products, and other food items.
• Procurements from MSMEs: Britannia Industries Limited sources a significant portion of its raw materials, ingredients, and packaging materials from MSMEs, supporting local suppliers and manufacturers.

ITC Limited (Foods Division):

• Annual Procurements: ITC Limited (Foods Division), a diversified conglomerate with interests in FMCG, agribusiness, and hospitality, procures raw materials, ingredients, and packaging materials for its food processing operations.
• Procurements from MSMEs: ITC Limited actively collaborates with MSMEs for the supply of various agricultural produce, spices, grains, and other raw materials required for its food products.

Parle Products Pvt. Ltd.:

• Annual Procurements: Parle Products Pvt. Ltd., one of the largest biscuit and confectionery manufacturers in India, procures raw materials, ingredients, and packaging materials for its biscuit and confectionery production.
• Procurements from MSMEs: Parle Products Pvt. Ltd. sources a significant portion of its raw materials and packaging materials from MSMEs, supporting local suppliers and manufacturers.

Amul (Gujarat Cooperative Milk Marketing Federation Ltd.):

• Annual Procurements: Amul, a cooperative dairy organization, procures milk, dairy ingredients, packaging materials, and services for its dairy processing operations.
• Procurements from MSMEs: Amul actively engages with MSMEs, particularly dairy farmers and small-scale milk producers, for the supply of milk and dairy ingredients required for its dairy products.

4. Electronics and Electrical Equipments.

Havells India Limited:

• Annual Procurements: Havells India Limited, a leading electrical equipment manufacturer, procures a significant volume of raw materials, components, and machinery annually for its diverse range of electrical products, including wires, cables, switches, lighting, and home appliances.
• Procurements from MSMEs: Havells India Limited actively engages with MSMEs for the supply of various components, parts, and services required for its electrical equipment manufacturing operations.

Bharat Heavy Electricals Limited (BHEL):

• Annual Procurements: Bharat Heavy Electricals Limited (BHEL), a government-owned engineering and manufacturing company, procures a substantial volume of materials, components, and equipment annually for its power generation, transmission, and distribution projects, as well as its industrial and transportation segments.
• Procurements from MSMEs: BHEL collaborates with MSMEs for the supply of various components, parts, and services required for its projects and manufacturing activities across different sectors.

Voltas Limited:

• Annual Procurements: Voltas Limited, a Tata Group company, is a leading manufacturer of air conditioning and refrigeration equipment, as well as electromechanical projects and services. It procures raw materials, components, and equipment for its manufacturing and project execution activities.
• Procurements from MSMEs: Voltas Limited engages with MSMEs for the supply of various components, parts, and services required for its air conditioning, refrigeration, and electromechanical projects.

Larsen & Toubro Limited (L&T):

• Annual Procurements: Larsen & Toubro Limited (L&T), a multinational conglomerate, procures a significant volume of materials, components, and equipment annually for its diverse range of engineering, construction, and manufacturing projects across various sectors, including infrastructure, power, and heavy engineering.
• Procurements from MSMEs: L&T collaborates with MSMEs for the supply of various components, parts, and services required for its projects and manufacturing activities, fostering partnerships with local suppliers and manufacturers.

Crompton Greaves Consumer Electricals Limited:

• Annual Procurements: Crompton Greaves Consumer Electricals Limited, a leading manufacturer of consumer electrical products, procures raw materials, components, and machinery for its production of fans, lighting, pumps, and appliances.
• Procurements from MSMEs: Crompton Greaves Consumer Electricals Limited sources a significant portion of its components and parts from MSMEs, supporting local suppliers and manufacturers in the electrical equipment sector.

5. Construction and Infrastructure

Larsen & Toubro Limited (L&T):

• Annual Procurements: Larsen & Toubro Limited (L&T), a multinational conglomerate, procures a significant volume of materials, equipment, and services annually for its diverse range of engineering, procurement, and construction (EPC) projects across various sectors, including infrastructure, power, transportation, and water.
• Procurements from MSMEs: L&T actively engages with MSMEs for the supply of various materials, components, and services required for its construction and infrastructure projects, fostering partnerships with local suppliers and contractors.

GMR Group:

• Annual Procurements: GMR Group, a leading infrastructure developer in India, procures materials, equipment, and services for its projects in sectors such as airports, energy, transportation, and urban infrastructure.
• Procurements from MSMEs: GMR Group collaborates with MSMEs for the supply of materials, components, and services required for its infrastructure projects, supporting local suppliers and contractors.

Shapoorji Pallonji Group:

• Annual Procurements: Shapoorji Pallonji Group, a diversified conglomerate with interests in construction, real estate, and infrastructure, procures materials, equipment, and services for its projects across various sectors, including commercial, residential, industrial, and infrastructure.
• Procurements from MSMEs: Shapoorji Pallonji Group sources a significant portion of its materials and services from MSMEs, supporting local suppliers and contractors in the construction and infrastructure sectors.

Tata Projects Limited:

• Annual Procurements: Tata Projects Limited, a subsidiary of Tata Group, is a leading engineering, procurement, and construction (EPC) company that procures materials, equipment, and services for its infrastructure, power, and urban development projects.
• Procurements from MSMEs: Tata Projects Limited actively engages with MSMEs for the supply of materials, components, and services required for its construction and infrastructure projects, contributing to the development of local suppliers and contractors.

Essar Group:

• Annual Procurements: Essar Group, a multinational conglomerate with interests in steel, energy, infrastructure, and services, procures materials, equipment, and services for its infrastructure projects, including ports, power plants, and transportation.
• Procurements from MSMEs: Essar Group collaborates with MSMEs for the supply of materials, components, and services required for its infrastructure projects, supporting local suppliers and contractors.

6. Chemicals and Pharmaceuticals

Sun Pharmaceutical Industries Limited:

• Annual Procurements: Sun Pharmaceutical Industries Limited, one of the largest pharmaceutical companies in India, procures a significant volume of raw materials, active pharmaceutical ingredients (APIs), intermediates, packaging materials, and services annually for its pharmaceutical manufacturing operations.
• Procurements from MSMEs: Sun Pharmaceutical Industries Limited actively engages with MSMEs for the supply of various raw materials, intermediates, and services required for its pharmaceutical production processes.

Dr. Reddy's Laboratories Limited:

• Annual Procurements: Dr. Reddy's Laboratories Limited, a leading pharmaceutical company in India, procures raw materials, APIs, formulations, packaging materials, and services for its pharmaceutical manufacturing and research activities.
• Procurements from MSMEs: Dr. Reddy's Laboratories Limited collaborates with MSMEs for the supply of various raw materials, APIs, and services required for its pharmaceutical products and research initiatives.

Pidilite Industries Limited:

• Annual Procurements: Pidilite Industries Limited, a diversified company with interests in adhesives, sealants, construction chemicals, and consumer products, procures raw materials, chemicals, and packaging materials for its manufacturing operations.
• Procurements from MSMEs: Pidilite Industries Limited sources a significant portion of its raw materials and chemicals from MSMEs, supporting local suppliers and manufacturers in the chemicals and allied industries.

Aarti Industries Limited:

• Annual Procurements: Aarti Industries Limited, a leading manufacturer of specialty chemicals and pharmaceutical intermediates, procures raw materials, intermediates, and services for its chemical manufacturing operations.
• Procurements from MSMEs: Aarti Industries Limited actively collaborates with MSMEs for the supply of various raw materials, intermediates, and services required for its specialty chemicals and pharmaceutical products.

UPL Limited:

• Annual Procurements: UPL Limited, a global agrochemical and crop protection company, procures raw materials, chemicals, intermediates, and packaging materials for its agrochemical manufacturing operations.
• Procurements from MSMEs: UPL Limited sources a significant portion of its raw materials and intermediates from MSMEs, supporting local suppliers and manufacturers in the chemicals and agrochemicals sectors.

7. Information Technology and IT-Enabled industries

Tata Consultancy Services (TCS):

• Annual Procurements: Tata Consultancy Services (TCS), one of the largest IT services companies in the world, procures a significant volume of hardware, software, services, and other IT-related products annually for its diverse range of projects and operations.
• Procurements from MSMEs: TCS actively engages with MSMEs for the supply of various IT products, services, and solutions required for its projects and client engagements.

Infosys Limited:

• Annual Procurements: Infosys Limited, a global leader in consulting, technology, and outsourcing solutions, procures hardware, software, services, and other IT-related products for its projects and operations worldwide.
• Procurements from MSMEs: Infosys Limited sources a significant portion of its IT products, services, and solutions from MSMEs, supporting local suppliers and vendors in the IT ecosystem.

Wipro Limited:

• Annual Procurements: Wipro Limited, a leading global information technology, consulting, and business process services company, procures hardware, software, services, and other IT-related products for its projects and operations across various industries.
• Procurements from MSMEs: Wipro Limited collaborates with MSMEs for the supply of IT products, services, and solutions required for its client engagements and business activities.

HCL Technologies Limited:

• Annual Procurements: HCL Technologies Limited, a multinational IT services company, procures hardware, software, services, and other IT-related products for its projects and operations globally.
• Procurements from MSMEs: HCL Technologies Limited engages with MSMEs for the supply of IT products, services, and solutions required for its client projects and business operations.

Tech Mahindra Limited:

• Annual Procurements: Tech Mahindra Limited, a multinational IT services and consulting company, procures hardware, software, services, and other IT-related products for its projects and operations worldwide.
• Procurements from MSMEs: Tech Mahindra Limited sources IT products, services, and solutions from MSMEs, fostering partnerships with local suppliers and vendors in the IT industry.
  
  

8. Handicrafts and Handloom.

Fabindia Overseas Pvt. Ltd.:

• Annual Procurements: Fabindia Overseas Pvt. Ltd., a well-known retailer of handcrafted products, procures a significant volume of handicrafts, handloom textiles, home decor items, and accessories annually for its retail outlets and online sales.
• Procurements from MSMEs: Fabindia actively engages with MSMEs, artisan clusters, and cooperatives for the sourcing of handcrafted products, supporting local artisans and craftsmen across India.

Tribes India (Tribal Cooperative Marketing Development Federation of India Ltd.):

• Annual Procurements: Tribes India, operated by the Tribal Cooperative Marketing Development Federation of India Ltd. (TRIFED), procures a diverse range of handicrafts, handloom textiles, tribal art, and traditional crafts from tribal artisans and cooperatives.
• Procurements from MSMEs: Tribes India sources a significant portion of its products from MSMEs, artisan groups, and cooperatives, promoting the livelihoods of tribal communities and indigenous craftsmen.

Khadi and Village Industries Commission (KVIC):

• Annual Procurements: Khadi and Village Industries Commission (KVIC), a statutory body under the Ministry of Micro, Small & Medium Enterprises (MSMEs), procures khadi textiles, village industries products, and handicrafts from khadi institutions, village industries units, and artisan clusters.
• Procurements from MSMEs: KVIC sources its products predominantly from MSMEs, khadi institutions, and village industries units, supporting rural artisans, weavers, and craftsmen across India.

Mother Earth (Rustic Artisans Pvt. Ltd.):

• Annual Procurements: Mother Earth, operated by Rustic Artisans Pvt. Ltd., specializes in handcrafted home decor, lifestyle products, and accessories inspired by Indian craftsmanship and heritage.
• Procurements from MSMEs: Mother Earth collaborates with MSMEs, artisan groups, and NGOs for the sourcing of handcrafted products, promoting sustainable livelihoods and traditional crafts.

Kalaneca Udyog Pvt. Ltd.:

• Annual Procurements: Kalaneca Udyog Pvt. Ltd., a manufacturer and exporter of handwoven textiles, procures handloom sarees, fabrics, and traditional weaves from artisan clusters and weaving communities.
• Procurements from MSMEs: Kalaneca Udyog Pvt. Ltd. sources its handloom textiles from MSMEs, weaving cooperatives, and artisan clusters, supporting the livelihoods of weavers and promoting handloom traditions.

9. Healthcare and Pharmaceuticals.

Sun Pharmaceutical Industries Limited:

• Annual Procurements: Sun Pharmaceutical Industries Limited, one of the largest pharmaceutical companies in India, procures a significant volume of raw materials, active pharmaceutical ingredients (APIs), intermediates, packaging materials, and services annually for its pharmaceutical manufacturing operations.
• Procurements from MSMEs: Sun Pharmaceutical Industries Limited actively engages with MSMEs for the supply of various raw materials, intermediates, and services required for its pharmaceutical production processes.

Dr. Reddy's Laboratories Limited:

• Annual Procurements: Dr. Reddy's Laboratories Limited, a leading pharmaceutical company in India, procures raw materials, APIs, formulations, packaging materials, and services for its pharmaceutical manufacturing and research activities.
• Procurements from MSMEs: Dr. Reddy's Laboratories Limited collaborates with MSMEs for the supply of various raw materials, APIs, and services required for its pharmaceutical products and research initiatives.

Cipla Limited:

• Annual Procurements: Cipla Limited, a global pharmaceutical company, procures raw materials, APIs, formulations, packaging materials, and services for its pharmaceutical manufacturing operations.
• Procurements from MSMEs: Cipla Limited sources a significant portion of its raw materials, APIs, and packaging materials from MSMEs, supporting local suppliers and manufacturers in the pharmaceutical industry.

Aurobindo Pharma Limited:

• Annual Procurements: Aurobindo Pharma Limited, a leading pharmaceutical company in India, procures raw materials, APIs, formulations, and packaging materials for its pharmaceutical manufacturing operations.
• Procurements from MSMEs: Aurobindo Pharma Limited engages with MSMEs for the supply of various raw materials, APIs, and packaging materials required for its pharmaceutical products.

Biocon Limited:

• Annual Procurements: Biocon Limited, a biopharmaceutical company, procures raw materials, APIs, biologics, and services for its pharmaceutical manufacturing and research activities.
• Procurements from MSMEs: Biocon Limited sources a significant portion of its raw materials, APIs, and services from MSMEs, supporting local suppliers and manufacturers in the pharmaceutical and biotechnology sectors.

10. Agri-business and Agro processing.

ITC Limited (Agri Business Division):

• Annual Procurements: ITC Limited, through its Agri Business Division, procures a significant volume of agricultural produce, including grains, pulses, oilseeds, spices, fruits, and vegetables, from farmers and agri-preneurs across India.
• Procurements from MSMEs: ITC Limited actively engages with MSMEs, farmer producer organizations (FPOs), and agricultural cooperatives for the sourcing of agricultural produce, promoting rural livelihoods and agribusiness development.

Nestl India Limited (Agri and Sourcing):

• Annual Procurements: Nestl India Limited, through its Agri and Sourcing division, procures raw materials such as milk, dairy ingredients, coffee beans, cocoa beans, grains, and spices for its food and beverage manufacturing operations.
• Procurements from MSMEs: Nestl India Limited collaborates with MSMEs, dairy farmers, and agricultural cooperatives for the supply of various agricultural produce and ingredients required for its products.

Adani Wilmar Limited:

• Annual Procurements: Adani Wilmar Limited, a joint venture between Adani Group and Wilmar International, procures a diverse range of agricultural commodities, including edible oils, pulses, grains, and spices, for its food processing and edible oil refining operations.
• Procurements from MSMEs: Adani Wilmar Limited sources agricultural commodities from MSMEs, farmers, and traders, supporting local suppliers and promoting agribusiness development.

Godrej Agrovet Limited:

• Annual Procurements: Godrej Agrovet Limited, a diversified agribusiness company, procures agricultural inputs such as animal feed, crop protection products, seeds, and agri-inputs, as well as raw materials for its agro-processing units.
• Procurements from MSMEs: Godrej Agrovet Limited engages with MSMEs, agricultural input manufacturers, and suppliers for the sourcing of agricultural inputs and raw materials required for its operations.

UPL Limited:

• Annual Procurements: UPL Limited, a global agrochemical and crop protection company, procures raw materials, chemicals, intermediates, and packaging materials for its agrochemical manufacturing operations.
• Procurements from MSMEs: UPL Limited sources a significant portion of its raw materials, intermediates, and packaging materials from MSMEs, supporting local suppliers and manufacturers in the agrochemicals and allied industries.

• International NBFCs/Fintechs Offering Purchase Order Finance

Purchase Order Finance (PO Finance) is a form of short-term funding provided by financial institutions to help businesses fulfill their purchase orders. While traditional banks and local financial institutions may offer PO finance, there are also international Non-Banking Financial Companies (NBFCs) and Fintech companies that provide such services.

C2FO: C2FO is a Fintech company that operates a platform connecting buyers and suppliers for working capital optimization. They offer supply chain finance solutions, including purchase order financing, to businesses worldwide.

TradeIX: TradeIX is a Fintech company specializing in trade finance solutions leveraging blockchain technology. They provide platforms and tools for various trade finance activities, including purchase order financing, to international businesses and financial institutions.

Greensill: Greensill is a global financial services company that offers supply chain finance solutions, including purchase order financing, to businesses across industries. They provide funding solutions to both buyers and suppliers through their platform.

DS-Concept: DS-Concept is an international trade finance company that offers various financing solutions, including purchase order financing, to exporters and importers globally. They provide funding based on confirmed purchase orders to help businesses fulfill their supply chain needs.

Bibby Financial Services: Bibby Financial Services is a global financial services provider specializing in trade and invoice finance solutions. They offer purchase order financing to businesses worldwide, helping them fulfill orders and grow their operations.

• Indian NBFCs/Fintechs Issuing Purchase Order Finance

In India, several Non-Banking Financial Companies (NBFCs) and Fintech companies offer Purchase Order Finance (PO Finance) to help businesses meet their working capital needs.

NeoGrowth Credit Pvt. Ltd.: NeoGrowth is a leading Fintech company in India that provides innovative financing solutions to small and medium-sized enterprises (SMEs). They offer Purchase Order Financing to businesses based on their confirmed purchase orders, enabling them to fulfill orders and grow their operations.

Capital Float: Capital Float is a prominent NBFC in India that offers a wide range of financial products, including Purchase Order Financing, to SMEs and startups. Their PO Finance solutions help businesses bridge the gap between order placement and payment receipt, providing them with the necessary funds to fulfill orders.

Lendingkart Finance Limited: Lendingkart is a digital lending platform that provides working capital loans and finance solutions to SMEs across India. They offer Purchase Order Financing to businesses to help them procure inventory, fulfill orders, and manage cash flow effectively.

KredX: KredX is a leading Fintech company in India that operates an invoice discounting platform, allowing businesses to unlock cash tied up in their unpaid invoices. They also offer Purchase Order Financing to businesses to help them fulfill large orders and scale their operations.

Indifi Technologies Pvt. Ltd.: Indifi is a digital lending platform that offers customized financing solutions to SMEs in India. They provide Purchase Order Financing to businesses in various sectors, including manufacturing, trading, and distribution, enabling them to fulfill orders and expand their businesses.

• Why Purchase Order Finance Isn't Widely Popular Among MSMEs in India (Suggestions for Questionnaire Development: a) MSMEs b) NBFCs)

Developing a questionnaire to explore why Purchase Order Finance (PO Finance) isn't widely popular among MSMEs in India requires understanding the perspectives of both MSMEs and NBFCs. Here are some suggestions for questionnaire development:

For MSMEs:

Awareness and Understanding:

• How familiar are you with Purchase Order Finance (PO Finance)?
• Have you ever considered using PO Finance to fulfill large orders? Why or why not?
• What are your main sources of financing for fulfilling purchase orders?
  
  

Perceived Barriers:

• What do you see as the main barriers to accessing PO Finance?
• Are there any specific challenges you face in obtaining financing for fulfilling purchase orders?
• Have you faced any difficulties in meeting the eligibility criteria for PO Finance?

Experience and Satisfaction:

• Have you ever utilized PO Finance? If yes, please share your experience.
• What factors influenced your decision to choose or not choose PO Finance?
• How satisfied are you with the existing PO Finance options available to MSMEs?

Suggestions for Improvement:

• What improvements or changes would make PO Finance more attractive to MSMEs?
• Are there any specific features or terms you would like to see in PO Finance offerings?
• How do you think the application process for PO Finance could be simplified or streamlined?

For NBFCs:

Product Development and Offering:

• Do you offer Purchase Order Finance (PO Finance) to NBFCs?
• What factors influenced your decision to offer or not offer PO Finance?
• How do you tailor your PO Finance products to meet the needs of NBFCs?

Market Perception and Demand:

• How would you describe the level of awareness and demand for PO Finance among NBFCs?
• What are the main reasons MSMEs cite for not utilizing PO Finance?
• How do you assess the potential market size for PO Finance among NBFCs in India?

Challenges and Solutions:

• What challenges do you face in promoting and offering PO Finance to NBFCs?
• How do you address the perceived barriers or challenges that NBFCs face in accessing PO Finance?
• Are there any specific strategies or initiatives you have implemented to increase adoption of PO Finance among NBFCs?

Future Outlook and Innovation:

• How do you see the future of PO Finance evolving for NBFCs in India?
• Are there any innovative approaches or technologies you are considering to enhance your PO Finance offerings?
• What role do you think collaboration and partnerships play in expanding access to PO Finance for NBFCs?

GeM Sahay: Overview

GeM Sahay is an initiative introduced by the Government of India to provide Purchase Order (PO) Finance solutions to businesses participating in government procurement activities through the Government e-Marketplace (GeM) platform.

GeM providing increasing market access to seller groups like MSEs, Women SHGs and Startups to reinforce the Make in India Initiative;

Instantaneous loans for Sellers at GeM SAHAY app;

GeM has now over 6,90,000 MSE sellers and service providers onboard;

Since its inception GeM has facilitated 67.27 lakh orders worth Rs. 111,113 Crores for 52,275 Govt buyers;

GeM providing online market access to under-served sellers reinforced the Atmanirbhar Bharat, Vocal for Local, Make in India initiatives

Secretary, department of Commerce, Government of India Dr Anup Wadhawan on 16^th June 2021 said that Government e-Marketplace (GeM) is providing increasing market access to seller groups like MSEs, Women SHGs, Startups reinforcing the Make in India Initiative and Govt of Indias policy to promote local MSEs.

Speaking to media, he said that presently GeM has over 6,90,000 MSE sellers and service providers onboard contributing over 56% of the total order value on GeM, which is a testament to GeMs success in not only onboarding but also engaging with the MSEs to help them participate in public procurement. The number of MSEs registered on the GeM platform has increased by over 62% since the last FY (2019-20). And this is a tremendous achievement- considering that there were only around 3000 MSMEs in FY 2016-17.

Since its inception in August 2017, GeM has facilitated 67.27 lakh orders worth 111,113 Crores from 18.85 lakh registered sellers and service providers for 52,275 Govt buyers. Most importantly, 6,95,432 MSE sellers and service providers have fulfilled 56.13 percent of the total order value on GeM.

Recently, MSME Ministry launched a new Udyam Registration Scheme for all MSME businesses as per the new MSME policy. The new Udyam form has a provision to take consent from businesses for auto-registration on GeM portal. In order to further smoothen the seller registration process for MSEs on the portal, GeM has operationalized API integration with Udyam Registration databases and details of MSMEs, who have given their consent to share their details with GeM, are being auto imported on GeM for creation of their seller profile and notification. As on 31st May 2021, 18,75,427 vendors are registered on GeM out of which 6,98,178 are MSEs and the share of procurement from MSEs on the portal is approx. 57 percent.

Providing online market access to under-served seller groups has reinforced the Atmanirbhar Bharat, Vocal for Local, Make in India initiative and Govt of Indias policy to promote local MSEs. The GeM platform has ensured effective and seamless implementation of the Make in India policy and the Public Procurement Policy for Preference to Micro and Small Enterprises. In order to provide an impetus to the Make in India initiative as part of the vision of Aatmanirbhar Bharat, and to promote local products through the Vocal for Local initiative, the Government has made it mandatory for all sellers on GeM to list the Country of Origin while registering new products.

GeM is a dedicated platform for Startups to list their innovative products under 10 globally recognized Startup subsectors was launched on 15th November 2019. At present there are 9,980 Startups registered on GeM and 87 of these Startups have listed their innovative products on Startup Runway.

To address the credit access challenges faced by MSMEs a latest functionality also being rolled out specially for SMEs is the GeMSAHAY app. The #GeMSAHAY initiative paves way for frictionless financing by leveraging fintech. MSEs can now get a loan at the point of acceptance of an order on the #GeM platform. It will help in meeting the working capital needs and ensure access to finance for MSEs.

One of the major challenges faced by SMEs is access to timely cash-flow based financing, since borrower assessment is typically being done on collaterals. Even though there are schemes like TReDS which facilitate loans, SMEs continue to find it difficult to avail of uncollateralized cash-based loans. These challenges had been reviewed and recommendations were made towards resolving the same by RBIs UK Sinha MSME Committee through its report in June 2019. The SAHAY initiative- a mobile application for lending- comparable to BHIM for the Unified Payments Interface (UPI), was launched to address these issues.

GeM is collaborating with the Indian Software Product Industry Round Table (iSPIRT), a non-profit tech think tanks volunteer team for the implementation of the GeM- SAHAY project, which has been tailored to meet the specific needs of MSMEs on the GeM platform. Sellers applying for the loan facility will experience a seamless end to end digital experience with a mobile application.

Through the GeM SAHAY app, loan disbursement will be instantaneous, instead of the conventional in-principle approval of loan that may very often not culminate in an actual disbursal. This facility will provide GeM sellers who are sole proprietors, with the best loan offers from top lenders in the country including public sector banks, private banks and NBFCs.

The GeM SAHAY platform is lender agnostic, allowing for any lender, duly regulated by the Reserve Bank of India, to participate and provide capital and smart collection accounts to the Sellers on GeM.

Objectives:

• Facilitate access to financing for small and medium-sized enterprises (SMEs) and Micro, Small, and Medium Enterprises (MSMEs) participating in government procurement on GeM.
• Support businesses in fulfilling government purchase orders by providing timely and affordable financing solutions.
• Enhance liquidity and working capital management for suppliers engaged in government contracts.

Key Features:

1. PO Finance Facilities: GeM Sahay offers PO Finance facilities to eligible suppliers registered on the GeM platform. Suppliers can avail financing based on confirmed purchase orders from government buyers.

2. Collaboration with Financial Institutions: The initiative involves collaboration with banks, non-banking financial companies (NBFCs), and fintech firms to offer PO financing products tailored to the needs of GeM suppliers.

3. Streamlined Application Process: GeM Sahay streamlines the application and approval process for PO finance, reducing paperwork and administrative burden for suppliers.

4. Competitive Terms and Rates: Financing under GeM Sahay comes with competitive terms and rates, ensuring affordability for suppliers while meeting their working capital requirements.

5. Risk Mitigation Measures: The initiative may incorporate risk mitigation measures, such as credit guarantees or insurance, to encourage financial institutions to extend financing to GeM suppliers.

6. Digital Integration: GeM Sahay leverages digital technologies to integrate financing solutions seamlessly within the GeM platform, enabling suppliers to apply for and manage their financing needs online.

Benefits:

• Provides timely access to working capital for GeM suppliers, enabling them to fulfill government orders without financial constraints.
• Enhances the participation of MSMEs and SMEs in government procurement, promoting inclusive economic growth and entrepreneurship.
• Improves transparency and efficiency in government procurement processes through digital integration of financing solutions within GeM.

Conclusion:

GeM Sahay is a pioneering initiative by the Government of India to address the financing needs of suppliers engaged in government procurement on the GeM platform. By offering PO Finance solutions tailored to the unique requirements of GeM suppliers, the initiative aims to foster a conducive environment for MSMEs and SMEs to thrive in the government procurement ecosystem.

• Onboarded NBFCs and Banks
  
  
  
• Collaborations with NBFCs and Banks: Lessons Learned and Best Practices

1. Clear Communication and Objectives Setting:

• Establish clear communication channels between the Government e-Marketplace (GeM) and the participating NBFCs and banks to ensure alignment of objectives and expectations.
• Clearly define the goals of the collaboration, including increasing access to financing for GeM suppliers, streamlining the financing process, and enhancing transparency.

2. Customized Solutions for GeM Suppliers:

• Tailor financing solutions to the specific needs of GeM suppliers, considering factors such as their business size, sector, and financing requirements.
• Offer flexible and innovative financing options, including Purchase Order (PO) Finance, invoice financing, and working capital loans, to address the diverse needs of GeM suppliers.

3. Streamlined Onboarding and Application Process:

• Simplify the onboarding and application process for GeM suppliers to access financing from participating NBFCs and banks.
• Leverage digital technologies to automate documentation, verification, and approval processes, reducing paperwork and turnaround times.

4. Transparency and Fair Terms:

• Ensure transparency in the terms and conditions of financing products offered to GeM suppliers, including interest rates, fees, and repayment terms.
• Maintain fairness and equity in the evaluation and approval of financing applications, regardless of the size or profile of the GeM supplier.

5. Risk Mitigation and Compliance:

• Implement robust risk assessment mechanisms to evaluate the creditworthiness of GeM suppliers and mitigate lending risks.
• Adhere to regulatory guidelines and compliance requirements governing NBFCs and banks' operations, including KYC (Know Your Customer) and AML (Anti-Money Laundering) norms.

6. Continuous Monitoring and Evaluation:

• Monitor the performance and impact of the collaboration over time, tracking key metrics such as loan disbursements, repayment rates, and supplier satisfaction levels.
• Solicit feedback from GeM suppliers and financial institutions regularly to identify areas for improvement and optimize the collaboration's effectiveness.

7. Capacity Building and Training:

• Provide training and capacity-building support to NBFCs and banks on the unique characteristics of GeM suppliers, government procurement processes, and the GeM Sahay initiative.
• Equip GeM suppliers with knowledge and resources to make informed decisions about financing options available to them and navigate the application process effectively.

By implementing these lessons learned and best practices, collaborations between GeM and NBFCs/banks under the GeM Sahay initiative can effectively support GeM suppliers in accessing timely and affordable financing solutions to fulfill government procurement orders, driving economic growth and inclusion.

Volume Analysis and success stories. No. of PO financed

150,721- Primary Buyers

217,531- Secondary Buyers

11,895- Product Categories

322- Service Categories

6,279,901- Order volume in Last FY

403,703- Order value in Last FY (cr)

272,853- Order volume in Current FY

62,252- Order value in Current FY (cr)

46.97- Orders value (MSE %)

• Impact Assessment: Contribution to MSME Growth and Financial Inclusion

GeM Sahay, an initiative under the Government e-Marketplace (GeM), seems to focus on supporting Micro, Small, and Medium Enterprises (MSMEs) by facilitating their growth and enhancing financial inclusion. Here's a structured approach to conducting an impact assessment for this initiative:

1. Define Objectives : Clearly outline the objectives of GeM Sahay. Is it aimed at increasing the participation of MSMEs on the GeM platform? Or does it aim to improve their access to finance? Or both? Understanding the primary goals is crucial for evaluating its impact.

2. Identify Key Metrics : Determine the metrics that will be used to measure the impact. These could include the number of MSMEs registered on GeM Sahay, the volume of transactions conducted, the amount of credit accessed by MSMEs through the platform, etc.

3. Baseline Data Collection : Gather data on the current state of MSME participation on the GeM platform and their access to finance. This serves as a baseline against which the impact of GeM Sahay can be assessed.

4. Implementation Analysis : Evaluate the implementation of GeM Sahay. This involves assessing the effectiveness of outreach efforts, the ease of registration for MSMEs, the availability of financial products/services, and any challenges encountered during implementation.

5. Quantitative Assessment : Use the identified metrics to quantitatively measure the impact of GeM Sahay. Compare the baseline data with the current data to determine any changes or improvements. For example, has there been an increase in the number of MSMEs registered on GeM Sahay? Has there been an uptick in the volume of transactions?

6. Qualitative Assessment : Supplement the quantitative analysis with qualitative insights. Conduct surveys or interviews with MSMEs participating in GeM Sahay to understand their experiences, challenges faced, and benefits derived. Also, gather feedback from financial institutions and other stakeholders involved in the initiative.

7. Financial Inclusion Analysis : Specifically focus on assessing the impact of GeM Sahay on financial inclusion. Determine whether MSMEs are accessing formal financial services more easily through the platform. Analyze the types of financial products/services being utilized and their relevance to MSME needs.

8. Stakeholder Perspectives : Consider the perspectives of various stakeholders involved, including government agencies, MSMEs, financial institutions, and GeM administrators. Understanding their viewpoints can provide valuable insights into the overall impact of GeM Sahay.

9. Recommendations and Future Strategies : Based on the findings of the impact assessment, propose recommendations for enhancing the effectiveness of GeM Sahay. These could include improvements to the platform, targeted interventions to address specific challenges, or expansion strategies to reach more MSMEs.

10. Monitoring and Evaluation : Establish mechanisms for ongoing monitoring and evaluation of GeM Sahay to track its impact over time. Continuously collect data, solicit feedback, and make adjustments as necessary to ensure that the initiative remains relevant and effective in supporting MSME growth and financial inclusion.

PO Finance Strategies: How T-Assets Can Launch PO Finance Products

By:

Financing POs upto 5 crores.

Collateral free short term loans.

Cashflow backed Repayments.

Quick turnaround time.

Procurement Finance.

Receivable Finance.

Cash Discounting Solution

Procurement finance refers to the various financial mechanisms and strategies employed by businesses to optimize their procurement processes. It involves the management of cash flows, working capital, and risk associated with purchasing goods and services from suppliers. Here are some key aspects and strategies related to procurement finance:

1. Working Capital Management : Efficient procurement finance involves effectively managing working capital to ensure that sufficient funds are available to procure goods and services as needed. This includes managing accounts payable, accounts receivable, and inventory levels to optimize cash flow and minimize financing costs.

2. Supplier Financing : Supplier financing, also known as supplier credit or trade credit, involves negotiating favorable payment terms with suppliers to extend payment deadlines. This allows businesses to conserve cash and improve their working capital position by delaying payment for goods and services until after they have been sold or used.

3. Supply Chain Finance : Supply chain finance programs allow businesses to access financing based on their supply chain activities. These programs may involve the use of third-party financiers to provide early payment to suppliers on behalf of buyers, enabling suppliers to receive funds sooner while allowing buyers to extend payment terms.

4. Inventory Financing : Inventory financing involves using inventory as collateral to secure financing from lenders. This allows businesses to access capital to purchase inventory without tying up other assets or depleting cash reserves. Inventory financing can be particularly useful for businesses with seasonal or fluctuating inventory needs.

5. Purchase Order Financing : Purchase order financing involves obtaining financing based on confirmed purchase orders from customers. This allows businesses to fulfill large or unexpected orders without having to rely solely on their own capital resources. Purchase order financing can be especially beneficial for businesses with limited access to traditional financing sources.

6. Risk Management : Procurement finance also involves managing risks associated with procurement activities, such as supply chain disruptions, price fluctuations, and currency risk. Businesses may use various risk management tools, such as hedging strategies and insurance products, to mitigate these risks and protect their financial interests.

Overall, effective procurement finance requires a holistic approach that encompasses working capital management, supplier relationships, supply chain optimization, and risk management. By implementing strategies to optimize procurement processes and manage financial resources efficiently, businesses can improve their competitiveness, profitability, and resilience in the marketplace.

Receivable finance, also known as accounts receivable financing or factoring, is a financial arrangement where a business sells its outstanding invoices (accounts receivable) to a third-party finance provider (factor) at a discount. This provides immediate cash flow to the business, allowing it to access funds tied up in unpaid invoices. Receivable finance can take various forms, including:

1. Factoring: In a factoring arrangement, the factor purchases the business's outstanding invoices at a discount, typically between 70% to 90% of the invoice value. The factor then assumes responsibility for collecting payment from the customers. Once the customers pay the invoices, the factor deducts its fees and remits the remaining balance to the business. Factoring is beneficial for businesses that need immediate cash flow and are willing to accept a discount on their receivables.

2. Invoice Discounting: Invoice discounting is similar to factoring but differs in one key aspect: the business retains responsibility for collecting payment from its customers. Instead of selling the invoices outright, the business uses them as collateral to secure a revolving line of credit from a finance provider. The finance provider advances funds based on the value of the invoices, typically up to 85% of the total amount. The business retains control over its customer relationships and collections process, making invoice discounting a more discreet form of receivable finance.

3. Asset-Based Lending (ABL): Asset-based lending involves using a company's assets, including accounts receivable, inventory, and equipment, as collateral to secure a loan or line of credit. Receivables serve as a primary collateral component in ABL arrangements, with lenders advancing funds based on a percentage of the receivable's value. ABL provides businesses with flexible financing options based on the strength of their asset base, making it suitable for companies with significant accounts receivable balances.

4. Selective Receivable Finance: Selective receivable finance allows businesses to choose which invoices to finance on a case-by-case basis. Instead of committing to finance all invoices through a factoring or discounting agreement, businesses can selectively finance specific invoices as needed. This provides greater flexibility and control over cash flow management while minimizing financing costs.

Receivable finance offers several benefits to businesses, including improved cash flow, access to working capital, and reduced financial risk. By leveraging their accounts receivable as a source of financing, businesses can accelerate cash flow, fund growth initiatives, and navigate periods of economic uncertainty more effectively. However, it's essential for businesses to carefully evaluate the costs, terms, and implications of receivable finance arrangements to ensure they align with their financial objectives and operational needs.

A cash discounting solution is a financial arrangement that allows businesses to offer their customers a discount for paying invoices or bills early. Unlike traditional credit card processing, where merchants pay fees for each transaction, cash discounting shifts the cost of processing credit card payments to the customer. Here's how it typically works:

1. Offering Discounts : Businesses offer a discount to customers who pay with cash or check, or who pay invoices within a specified timeframe (e.g., within 10 days of invoicing). The discount is usually a percentage of the total invoice amount, such as 1% or 2%.

2. Card Processing Fees : For customers who choose to pay with credit or debit cards, the business adds a surcharge or processing fee to the transaction. This fee covers the cost of processing card payments and helps offset the discounts offered to cash-paying customers.

3. Transparent Pricing : Businesses must clearly disclose their cash discounting policy to customers, including the amount of the discount and any applicable surcharges or fees. This transparency ensures that customers understand the terms of the arrangement and can make informed decisions about their payment methods.

4. Compliance : Cash discounting solutions must comply with card network rules and regulations, as well as state and federal laws governing surcharging and payment processing. Businesses should ensure that their cash discounting practices adhere to all applicable regulations to avoid potential legal issues or penalties.

5. Technology Integration : Many cash discounting solutions leverage technology, such as point-of-sale (POS) systems or payment processing platforms, to automate the calculation and application of discounts and surcharges. Integrating cash discounting functionality into existing payment systems can streamline operations and ensure accuracy in pricing.

6. Customer Education : Businesses may need to educate their customers about the benefits of cash discounting and how it works. Providing clear communication and support materials can help alleviate any confusion or concerns customers may have about the new payment structure.

Overall, cash discounting solutions offer businesses a way to reduce their payment processing costs while incentivizing customers to pay invoices promptly. By implementing transparent pricing policies and leveraging technology to facilitate transactions, businesses can effectively manage cash flow and improve their bottom line.

• Issuing PO Finance for NBFCs and Fintechs: Process and Growth Strategies:

Issuing Purchase Order (PO) finance for Non-Banking Financial Companies (NBFCs) and Fintechs involves a combination of robust processes and growth strategies to effectively meet the financing needs of businesses. Here's a comprehensive approach to the process and growth strategies:

Process:

1. Risk Assessment and Underwriting : Implement a thorough risk assessment process to evaluate the creditworthiness of businesses seeking PO finance. Assess factors such as the business's financial health, track record, industry trends, and the creditworthiness of buyers.

2. Documentation and Due Diligence : Establish standardized documentation requirements and conduct due diligence to verify the authenticity of purchase orders, invoices, and other relevant documents. Ensure compliance with regulatory requirements and internal policies.

3. Funding Structure : Develop flexible funding structures tailored to the needs of NBFCs and Fintechs, considering factors such as loan-to-value ratios, advance rates, repayment terms, and interest rates. Leverage technology to streamline funding processes and improve efficiency.

4. Credit Enhancement : Mitigate risks associated with PO finance by implementing credit enhancement mechanisms such as collateralization, insurance, or guarantees. Enhance the creditworthiness of transactions to attract investors and reduce funding costs.

5. Customer Relationship Management : Cultivate strong relationships with NBFCs, Fintechs, and businesses seeking PO finance. Provide personalized support, timely communication, and value-added services to enhance customer satisfaction and retention.

Growth Strategies:

1. Market Penetration : Identify target markets and industries with high demand for PO finance, such as manufacturing, distribution, and retail. Develop marketing strategies to raise awareness of PO finance solutions and differentiate offerings from competitors.

2. Product Innovation : Continuously innovate and refine PO finance products to address evolving market needs and customer preferences. Introduce new features, pricing structures, and value-added services to enhance the value proposition for clients.

3. Partnerships and Alliances : Forge strategic partnerships with NBFCs, Fintechs, banks, and other financial institutions to expand the reach and distribution channels for PO finance products. Collaborate with technology providers to leverage digital platforms and enhance product delivery capabilities.

4. Geographical Expansion : Explore opportunities for geographical expansion into new markets or regions with untapped potential for PO finance. Adapt products and strategies to local market dynamics, regulatory requirements, and cultural considerations.

5. Data Analytics and Technology : Harness the power of data analytics and technology to optimize decision-making, risk management, and operational efficiency. Utilize predictive analytics, machine learning algorithms, and automation tools to enhance underwriting processes and drive business growth.

6. Customer Education and Awareness : Educate businesses, NBFCs, and Fintechs about the benefits and advantages of PO finance as a flexible and cost-effective financing solution. Offer training programs, webinars, and educational resources to increase awareness and adoption of PO finance products.

By combining robust processes with strategic growth initiatives, NBFCs and Fintechs can successfully issue PO finance solutions that meet the diverse needs of businesses and drive sustainable growth in the market.

• Industries Suitable for Collaboration in Issuing PO Finance to MSMEs:

Collaboration in issuing Purchase Order (PO) finance to Micro, Small, and Medium Enterprises (MSMEs) can be beneficial across various industries. Here are some industries where collaboration in offering PO finance to MSMEs can be particularly suitable:

1. Manufacturing : Manufacturing companies often face cash flow challenges due to the need to purchase raw materials and cover production costs before receiving payment for finished goods. Collaborating to offer PO finance can help MSME manufacturers fulfill orders, ramp up production, and expand their businesses without being constrained by limited working capital.

2. Distribution and Wholesale : Distributors and wholesalers play a crucial role in the supply chain by purchasing goods in bulk from manufacturers and selling them to retailers. Offering PO finance to MSME distributors and wholesalers enables them to meet customer demand, manage inventory levels, and optimize their supply chain operations.

3. Retail : Retailers, especially small and medium-sized businesses, may require financing to purchase inventory and stock their shelves. Collaborative PO finance solutions can provide retailers with the necessary capital to fulfill orders, maintain product availability, and capitalize on sales opportunities, particularly during peak seasons or promotional periods.

4. Consumer Goods : Industries producing consumer goods such as apparel, electronics, and household products often experience fluctuations in demand and seasonality. Collaborative PO finance arrangements can help MSMEs in the consumer goods sector manage cash flow variability, finance production runs, and meet the needs of retail customers in a timely manner.

5. Technology and E-commerce : MSMEs operating in the technology and e-commerce sectors may require financing to fulfill orders for hardware, software, or digital products. Collaborating to offer PO finance can support these businesses in scaling their operations, launching new products or services, and staying competitive in rapidly evolving markets.

6. Food and Beverage : MSMEs in the food and beverage industry, including producers, distributors, and retailers, often require financing to purchase ingredients, packaging materials, and equipment. Collaborative PO finance solutions can help these businesses manage cash flow constraints, invest in product innovation, and expand distribution channels to reach new customers.

7. Construction and Infrastructure : Construction contractors and subcontractors may need financing to cover upfront costs for materials, labor, and equipment required for project execution. Collaborating to offer PO finance can support MSMEs in the construction and infrastructure sectors in bidding on projects, mobilizing resources, and completing work on schedule.

8. Health care and Pharmaceuticals : MSMEs in the healthcare and pharmaceutical industries, including medical device manufacturers, pharmaceutical wholesalers, and retail pharmacies, often require financing to procure inventory and comply with regulatory requirements. Collaborative PO finance solutions can help these businesses ensure product availability, meet patient needs, and navigate industry regulations.

By collaborating to offer PO finance across these industries, financial institutions, fintech companies, and other stakeholders can support the growth and resilience of MSMEs, drive economic development, and foster innovation and entrepreneurship.

• Risks Associated with Providing Purchase Order Finance to MSMEs:

While providing Purchase Order (PO) finance to Micro, Small, and Medium Enterprises (MSMEs) can be beneficial, it also entails certain risks. Here are some key risks associated with offering PO finance to MSMEs:

1. Credit Risk : MSMEs may have limited financial resources and weaker credit profiles compared to larger corporations. There is a risk of default if MSMEs are unable to fulfill their purchase orders due to financial difficulties, market challenges, or operational issues.

2. Supplier Risk : PO finance relies on the ability of MSMEs to deliver goods or services to their buyers according to the terms of the purchase order. If MSMEs experience disruptions in their supply chains, such as delays in receiving raw materials or components, it can impact their ability to fulfill orders and repay the financing.

3. Market Risk : MSMEs operating in certain industries or sectors may be more susceptible to market volatility, changes in consumer demand, or regulatory developments. Fluctuations in market conditions can affect the viability of MSMEs' businesses and their ability to generate revenue to repay PO finance.

4. Operational Risk : MSMEs may face operational challenges such as production delays, quality issues, or supply chain disruptions that impact their ability to fulfill purchase orders on time. Operational risks can result in delays or cancellations of orders, leading to financial losses for both the MSMEs and the PO finance providers.

5. Fraud Risk : There is a risk of fraud or misrepresentation, where MSMEs provide false or inaccurate information about their purchase orders, financial status, or business operations to obtain financing. Fraudulent activities can result in financial losses and reputational damage for PO finance providers.

6. Legal and Regulatory Risk : PO finance transactions are subject to legal and regulatory requirements governing lending practices, consumer protection, and financial transactions. Non-compliance with applicable laws and regulations can lead to legal disputes, regulatory fines, or sanctions for PO finance providers.

7. Concentration Risk : PO finance providers may face concentration risk if they have a high exposure to a small number of MSME clients or industries. Concentration risk increases the potential impact of adverse events or defaults on the provider's overall portfolio and financial performance.

8. Reputational Risk : Poor performance or negative outcomes associated with PO finance arrangements can damage the reputation of finance providers, leading to loss of customer trust, investor confidence, and business opportunities.

To mitigate these risks, PO finance providers should implement robust risk management practices, conduct thorough due diligence on MSME clients, diversify their portfolios, monitor client performance, and establish effective credit risk mitigation measures such as collateral requirements or credit insurance. Additionally, ongoing monitoring and proactive communication with MSME clients can help identify and address potential issues early on, reducing the likelihood of defaults or financial losses.

• Risk Mitigation Strategies for NBFCs and Fintechs :

For Non-Banking Financial Companies (NBFCs) and Fintechs engaged in providing Purchase Order (PO) finance to Micro, Small, and Medium Enterprises (MSMEs), effective risk mitigation strategies are crucial to safeguard against potential losses and ensure the sustainability of their lending operations. Here are several risk mitigation strategies tailored for NBFCs and Fintechs:

1. Comprehensive Due Diligence : Conduct thorough due diligence on MSME borrowers to assess their creditworthiness, financial stability, and track record. Evaluate factors such as business performance, industry trends, management capabilities, and repayment capacity. Utilize data analytics and credit scoring models to enhance the accuracy of risk assessment.

2. Risk-Based Pricing : Implement risk-based pricing strategies to align loan terms and pricing with the level of risk associated with each MSME borrower. Charge higher interest rates or fees for higher-risk borrowers to compensate for increased credit risk exposure. Tailor financing terms based on factors such as credit history, collateral, and industry risk.

3. Collateralization : Require collateral or security from MSME borrowers to mitigate credit risk and secure repayment of PO finance. Accept tangible assets such as inventory, equipment, accounts receivable, or property as collateral. Conduct regular valuations and monitoring of collateral to ensure its adequacy and enforceability in the event of default.

4. Credit Enhancement : Utilize credit enhancement mechanisms such as guarantees, insurance, or third-party backing to enhance the credit quality of PO finance transactions. Seek credit insurance coverage to protect against non-payment by buyers or default by MSME borrowers. Obtain guarantees or co-signers from creditworthy entities to provide additional security for lending activities.

5. Diversification : Diversify the PO finance portfolio across different industries, geographies, and MSME segments to reduce concentration risk and minimize exposure to specific market or sectoral risks. Avoid over-reliance on a small number of borrowers or industries to mitigate the impact of adverse events or economic downturns.

6. Monitoring and Surveillance : Implement robust monitoring and surveillance mechanisms to track the performance and financial health of MSME borrowers throughout the loan lifecycle. Monitor key financial indicators, payment behavior, and operational metrics to identify early warning signs of potential default or financial distress. Utilize technology-enabled tools and dashboards for real-time monitoring and reporting.

7. Stress Testing and Scenario Analysis : Conduct regular stress testing and scenario analysis to assess the resilience of the PO finance portfolio to adverse economic conditions, market shocks, or changes in borrower behavior. Evaluate the impact of various scenarios on loan performance, credit losses, and capital adequacy to proactively identify and address potential risks.

8. Regulatory Compliance : Ensure compliance with regulatory requirements and best practices governing lending practices, consumer protection, data privacy, and risk management. Stay abreast of regulatory developments and updates to adapt policies and procedures accordingly. Engage with regulatory authorities and industry associations to maintain transparency and uphold compliance standards.

By implementing these risk mitigation strategies, NBFCs and Fintechs can effectively manage credit risk, enhance portfolio quality, and strengthen their resilience to external shocks or uncertainties. These proactive measures help protect the interests of lenders, investors, and stakeholders while supporting the sustainable growth of MSMEs through access to PO finance.

Recommendations :

GeM is proactively implementing several functionalities to ensure that payment cycles are kept as short as possible so that MSEs are incentivized to participate in public procurement in large numbers. GeM has designed its payment terms such that Buyers are mandated to make payments within 10 days of acceptance of material. Also, GeM has implemented a process under which if a buyer or a consignee does not take timely actions in accepting / rejecting the material or in making the payments, the GeM system itself triggers reminders and also initiates auto PRC, Auto CRAC and auto payments in the case of General Pool Account payment method. Further a provision has been introduced which will penalize the Buyers in terms of deduction of interest penalty on their funds if they delay payments to sellers against GeM contracts.

GeM was the first e-commerce portal in the country which had started displaying the Country of Origin of all products on the product description page prominently for giving its Buyers the right to make informed decision of procurement. Now it is mandatory for all sellers to upfront declare the Country of Origin without which they cannot upload products on GeM.

Going a step further, GeM has also started highlighting the Local Content % on the product description page prominently. So even within the products made in India, buyers can identify products that have higher local content and take informed decision accordingly. Buyers have been provided with a filter in the marketplace to identify and select products from amongst MII complaint sellers / products only. Sellers who do not declare Local Content % while uploading product and creating catalogue on GeM will lose out on business and will not be able to participate in bids in which buyer has chosen to procure only MII compliant products.

Public Procurement Policy for Preference for MSE and Make in India are fully implemented on GeM. In the GeM Marketplace a MII filter has been provided using which the Buyer can filter out all non-local suppliers and restrict its procurements under Direct Purchase and L-1 Purchase from amongst Local Suppliers only.

GeM has been working closely with Ministry of Rural Development, Ministry of Tribal Affairs, Ministry of Textiles, Ministry of MSME, National Bamboo Mission, Ministry of Agriculture to develop GeM Outlet Stores and provide online access to markets for under-served seller groups in remote rural areas. A dedicated portal showcasing exquisitely handcrafted tribal handicrafts, textiles, paintings and minor forest produce was developed with TRIFED, Ministry of Tribal Affairs and launched on 27th June 2020. Presently, there are more than 4,000 products made by tribal entrepreneurs are listed on the portal. GeM has initiated the seamless onboarding of nearly 18 lakh artisans and 35 lakh weavers/ allied workers with Department of Handicrafts and Handloom, Ministry of Textiles on 17th July 2020. At present 28,365 artisans and 1.49 lakh weavers have been registered on GeM as sellers and are in the process of uploading their products in the relevant product categories. Khadi India also showcasing a range of exquisitely handwoven natural fibre cloth products from the weavers of India and aims to provide them in rural areas with market access to Government byers. More than 4,100 sellers have successfully registered on the GeM portal. The Divyangjan Collection being a unique initiative to showcase finely crafted products made by persons with disabilities/ Divyangjan and aims to provide divyangjan with market access to Government buyers, NGOs working with Divyangjan can list their products in 6 exclusive product categories and in the regular marketplace on GeM.

The Saras Collection is a dedicated portal showcasing daily utility products made by self-help groups [SHG] was developed in collaboration with Ministry of Rural Development and launched on 04th May 2020. Presently, there are more than 3,000 SHGs registered sellers on GeM and have listed approximately 1,000 products on the portal.

A unique initiative of the National Bamboo Mission and GeM, The Green Gold Collection showcases a range of exquisitely handcrafted bamboo and bamboo products, handicrafts, disposals and daily utility products, and aims to provide bamboo artisans, weavers and entrepreneurs in rural areas with market access to Government buyers. Approximately more than 1,200 sellers have successfully registered and listed their products on the portal. This initiative seeks to promote the adoption and use of bamboo products among Govt buyers and usher a sustainable rural economy for an Atmanirbhar Bharat.

GeM has dedicated outreach and training teams which provide both offline and online needs-based trainings and webinars to empower all sellers across the country, in their language and customized to their unique contexts. GeM also has a dedicated online Learning Management System (LMS) Portal has been developed where all training resources on using the platform have been uploaded. The chatbot GeMmy provides an array of services like a virtual assistant while onboarding any type of seller on to the platform for intuitive contextual assistance.