Access to finance is one of the biggest obstacles to business growth for small and medium-sized enterprises (SMEs), according to the World Bank. The global trade finance gap is estimated to have widened to $1.7 trillion in 2020 from $1.5 trillion in 2018, partly due to the COVID-19 pandemic.
Fintech startups see that gap as a business opportunity. Among them is Modifi, a digital trade finance platform for business payments and trade management software. It aims to help small and medium-sized businesses pay their sellers immediately, while giving them the option to pay later, according to Ankit Goel, Modifi’s senior vice president of global accounts.
“SMEs struggle to open lines of credit but are required to pay suppliers quickly, which can leave an SME cashing out after it delivers goods if not paid immediately. This is where fintech companies and cross-border trade management platforms like Modifi come into play, he said.
Modifi claims to serve thousands of exporters and importers in more than 40 countries. It is headquartered in Berlin but has offices in the US, UAE, India, Bangladesh and China.
“The company has grown fourfold year-on-year, with recent launches in Pakistan and the UK in addition to our eight existing markets,” added Goel, who is based in the UAE.
Covers a big need
There certainly seems to be significant demand for Modifi’s services. In India alone, for example, the startup has seen its business grow more than 2,100% in the past two years. In January, it announced the acquisition of UK-based Seawise Capital’s trade finance and SaaS India business, improving access to global trade for Indian SMEs.
In the Middle East, the company has focused on partnerships to increase market share. In May, DP World teamed up with Modifi to use its Cargoes Finance fintech platform, giving the Emirati logistics behemoth’s SME customers access to working capital. Last month, Modifi partnered with B2B MENA marketplace Tradeling, giving buyers favorable payment terms for 30, 60 or 90 days while enabling them to pay suppliers early.
Modifi’s latest market capitalization was estimated at over $120 million, set on the back of a $24 million Series B funding round in September 2021. In December, the company announced an additional $145 million in debt financing.
“We offer trade finance and other export solutions to SMEs at a low cost,” explained Goel. “We have a better understanding of the risks for SMEs due to access to a variety of data sources and can therefore not only assess and confirm the legitimacy of the buyer, but also ensure payment of the invoice, even if the buyers were to go bankrupt. This eliminates credit risk which often prevents sellers from offering more favorable contract terms to buyers.”
Elaborating on how the startup manages the risk associated with paying sellers when buyers have not yet paid for delivered goods, he explained: “Modifi enables the client to allow [its] the customers the usual time of payment while receiving the invoice amounts in cash immediately as it purchases the customer’s receivables and makes advance payments to the customer. Modifi insures the risk of non-receipt of the receivables from the customer with trade credit insurance. In addition, it has an invoice amount as collateral to cover itself against the credit risk.”
Ambitious goals
The company is now working to further increase the trust of SMEs by providing transparency in trade flows.
In June, Modifi unveiled a free shipment tracking tool so any business can track and manage shipments on a single platform. “The shipment tracking tool is the first of many merchant services to come, as we will be introducing many more software solutions to help our users optimize their supply chains,” said Goel.
The company hopes to maintain its stellar growth rate as it continues to expand into new markets. – All in all, we are still very early in the game. There is a great need for our services and our markets are huge. Even a 1% market share in global trade can equate to $200 billion worth of trade processed through Modifi. That is our long-term goal.”
(Reporting by Keith J. Fernandez; Editing by Seban Scaria)
