We have developed an automated risk assessment model to underwrite and evaluate risks in cross-border trade transactions”

We have developed an automated risk assessment model to underwrite and evaluate risks in cross-border trade transactions”

Intro: MSMEs sector in India has gone through major transformation in last few years as a result of innovative technology adoption. Drip Capital is a trade financing company that empowers MSMEs to engage in cross-border trade by financing the working capital requirements of these MSMEs through collateral-free credit solutions. They operate in a segment that is impacted by geopolitics as well as risks attached to its business model. Drip Capital has to date financed almost $3 Billion worth of global trade, their efficiency stems from the efficiency of its Risk assessment model which allows them to be aggressive despite the risks. To know more about the company, Rajeev Ranjan, Editor, DT recently interacted with Mr. Anil Gopinath, CTO , Drip Capital. Read out the excerpt below:

DT: What is your objective behind providing collateral-free credit to MSMEs? How do such credits empower MSMEs to compete strongly?

Anil: Banks are skeptical to lend to MSMEs as they lack collateral, proper financials, have a low credit rating, etc. Additionally, their lending process is lengthy and bureaucratic. MSMEs in cross-border trade space deal with added pressures of fluctuating market conditions and usually work with a payment cycle of 30-90 days, where capital gets locked for the time being. By eliminating the need for collateral and developing an easy-to-use interface, a simple online process, and a seamless onboarding journey, Drip, with its propriety risk assessment model and investments in tech, acts as a strategic financial partner for MSMEs to grow sustainably. With the additional working capital, MSMEs can effectively manage cash flows and utilize the funds to expand their product lines, procure new clients, tap into different geographies, build innovative and new-age tech solutions, etc. 

DT: Please tell me about your risk assessment models. How does this model help MSMEs to progress more efficiently?

Anil: We have developed an automated risk assessment model to underwrite and evaluate risks in cross-border trade transactions. Our model combines a risk policy engine (rule-based) and ML model-based mechanisms that consider direct and indirect data sources and help us assess hundreds of signals for each transaction in a short period. This data is then validated, risks are evaluated, and the financing terms are accordingly determined while underwriting the transaction. The data-driven assessment and the ML infrastructure not only strengthen our risk performance but also helps us stay updated on macroeconomic scenarios since the model is retrained periodically. This ensures we maintain decision-making accuracy and provide finance with a quick TAT compared to traditional lenders. 

DT: What are the latest technologies that you harness to help enterprises take strategic advantage?

Anil: Through our partnership with Tradelens - a blockchain-enabled digital platform, Drip can access the e-bill of lading, a crucial document in trade, and helps enterprises and shippers to develop a digital global supply chain and smoothen shipping operations. Drip has also partnered with Onfido, a global digital identity verification, and authentication provider, to make trade finance seamless for customers. The AI-driven verification can help enterprises minimize the risk of miscommunication and fraud by submitting documents and availing real-time responses on the validity of the paperwork. 

DT: What are the challenges for you currently in the market? How are you planning to overcome these challenges?

Anil: Reducing TAT: Thousands of data sources, which vary from country to country, contribute to thousands of signals that help us in our risk assessment. This diversity of data makes it challenging to reduce TAT across all our geographies because we need to collect and evaluate risk-related data from various sources as quickly as possible. On this note, we are consistently investing in tech capabilities to capture new data risk signals and make invoice financing faster, simpler and easier.

Lack of standardization of trade practices: There is an absence of internationally recognized, uniform rules and regulations governing digital transformation in the cross-border trade space. For instance, the digitization of trade documents, like the bill of lading, must be legally accepted across all countries to improve the shipping process and maintain standardized procedures. Fortunately, developments are occurring on this front. 

Drip constantly scouts for partnerships with key participants in the supply chain to leverage technology and modern practices to help MSMEs adopt a digital-first approach. 

DT:  Please brief me about your vision and future growth plans.

Anil: We are developing an intuitive global platform connecting multiple stakeholders like payment processors, shipping liners, insurance providers, etc., across the supply chain to make global trade easy and accessible for MSMEs. Besides this, we also have plans to launch a container tracking facility to enable businesses to monitor the movement of goods and improve logistics/inventory management. 

In addition, we continuously strive to build a robust risk model and are always looking for new digital risk data signals to improve decision-making accuracy. Apart from this, our focus is on introducing new tech capabilities and integrations to streamline processes. 

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