A couple of veterans of the Spanish banking industry have developed a funding model that kicks in at the very start of the supplier production process.
The 2023 edition of the World Supply Chain Finance Report notes global volume increased by more than one-fifth last year, with the strongest growth recorded in Africa.
However, the report authors acknowledge that lack of access to reliable, adequate and cost-effective sources of financing significantly inhibits the capacity of trade to act as a driver of inclusive economic growth and prosperity, and seriously hinders the growth potential of smaller enterprises and developing economies.
In 2017, Sandra Nolasco (former Head of Structured Trade Finance at BBVA) and Carmen Marín (a 16-year veteran of Santander) decided to do something about this by making it easier for corporates to offer their suppliers access to affordable funding at a much earlier stage of the process.
They believed that if suppliers in developing markets could tap into supply chain finance before they actually started to produce the goods, the certainty of knowing they had the funds in place to buy raw materials, pay wages, and keep machines running would give them the security and confidence to expand.
“Once a supplier has received the purchase order and the buyer has set up the finance programme, we advance the manufacturer up to 60% of the value of that purchase order,” explains Twinco Capital CEO Nolasco. “The big difference compared to the conventional approach is that we take performance risk on the supplier.”
This risk is mitigated through analysis of years’ worth of data on orders placed with each supplier as well as information from the supplier, from external databases, and from transactions in the form of bills of lading, packing lists, etc.
Chief Operating Officer Marín notes that Pakistan's exporters are grappling with various challenges stemming from a complex macroeconomic situation. The lack of USD reserves in the country – combined with soaring interest rates (which are heading towards 20%) – make it difficult for SMEs to access affordable financing.
“This poses significant problems for producers as they lack the necessary liquidity to secure their raw materials, especially at a time when inflation has crossed 30% and prices are skyrocketing,” she says. “Moreover, the recent decision by the Pakistani government to slash subsidies on utility prices is expected to cause an increase in utility costs of up to 15%, putting even more pressure on their margins.”
One such SME is Karachi-based denim garment manufacturer Denim-E, which has been a client since August 2021. The company operates two factories and Azhar Khalid, CEO and owner says Twinco’s support has been critical over the last few years.
“Because I had the liquidity before I started production I could improve the payment conditions to my suppliers, getting better pricing and being more competitive for my customers at a time when it was important for them,” he says. “That was a key advantage to secure the levels of growth we have achieved.”
Khalid says the company’s approach increases confidence in the supplier by relying on data related to the quality of the business relationship rather than the financials, securities and collateral that other funding providers seek.
“In future, we hope to be able to provide this type of service to our own suppliers,” he adds. “It would provide our suppliers with more affordable liquidity and help them grow.”
Nolasco and Marín are acutely aware that not only is their approach to supply chain finance unusual – they are also a female-led business in an industry where such businesses are not exactly commonplace.
Nolasco sees this as a potential advantage. “In a business with so many variables it is an advantage to be able to assess multiple factors,” she concludes. “The downside of being a woman is that sometimes you have to push harder to get heard – and we do that too.”