How Drip Capital is simplifying trade financing for SMBs in emerging markets

Access to credit is one of the major roadblocks small businesses continue to face. To tackle this problem, a host of fintech start-ups have cropped up to cater to this segment they believe remains underserved by big banks.

Drip Capital was established in 2016

Among them is Indian fintech start-up Drip Capital, which aims to bridge this gap and ease trade financing for small and medium-sized businesses (SMBs), with a focus on emerging markets. From its humble beginnings in India, the firm has now grown its presence to three different geographies, including Mexico and the USA. Calling itself a cash-efficient company, Drip Capital has ambitions to grow further.

FinTech Futures recently spoke with Pushkar Mukewar, CEO and founder of Drip Capital, to find out more about the company’s origins, offerings, and plans for the future.

FinTech Futures: What led you to starting Drip Capital?

Pushkar Mukewar: The idea stemmed from an urge to build a venture. Within that space, the problem I was most passionate about was access to credit, specifically among small businesses. I’m from Nagpur, India, and growing up, I saw that many from my community run small businesses, and the problem that I most happen to come across is access to credit. Also, through my experiences at Capital One and Oliver Wyman, I could see the underserved credit needs.

So that was the motivation, and we launched with a focus on the small business segment. We didn’t exactly launch with the model we operate with now, but over time, that model evolved into what we do currently, which is offering credit solutions for small businesses in emerging markets.

What are Drip Capital’s key offerings, and how does your platform work?

Our focus is really on addressing the credit needs of small and medium-sized businesses, and we specifically focus on cross-border trade.

For example, a use case: think about a small business exporter in India. They get an order from an overseas buyer and take 30-60 days to manufacture and ship the goods out, after which they’re waiting for another 60-90 days to get paid.

So, on our platform, which is an invoice discounting platform for sellers or SMB exporters, as soon as the SMB ships the goods out, they can submit the transaction on our platform and get paid upfront. So rather than waiting for some 150 days for the whole working capital cycle, once they start working with us, their working capital cycle can get compressed to about 60 days, which then allows them to manufacture more, procure more orders, and help them solve the working capital gap.

That’s the first product we launched, with a specific focus on emerging markets – India being the first market we launched in. We then expanded the same product offering to Mexico, our second market.

While we continue to work with small business exporters in multiple markets, over time, we also realised the need for an importer side financing product. For importers, we offer payables financing. A similar use case: when an importer needs to procure goods, they have to make the payment to their supplier upfront. Currently, we finance buyers in the US with our buy now, pay later (BNPL) solution – we pay the seller on their behalf, giving them additional time to pay for their imports.

We predominantly work across three markets – India, Mexico, and the USA. Of the three, currently, our biggest market is India because we started there and have been there for almost five to six years. Of course, while India continues to grow, the other markets are growing at a faster pace too.

Who would you call your competitors in this space?

On one hand, from the perspective of our small business customers, there are banks – the likes of Citibank and HSBC – banks that have a very global presence.

Pushkar Mukewar, founder and CEO of Drip Capital

However, these banks focus a lot more on the corporate segment and when it comes to the small business segment, their offerings are limited and always tend to pull them back. This is because banks require the company to put up hard collateral in the form of land, property, and machinery. And the reason why most of these SMEs remain underserved is that they don’t have that hard collateral to get approved and get adequate credit from a bank.

The second alternative is maybe more market specific; you may have other kinds of companies and fintechs offering something similar or trying to figure out how to solve working capital needs.

However, we observed that most of these non-bank financial institutions (NBFCs) do not have a product offering customised for export-import. Secondly, the transaction sizes or capital which is required in export-import tends to be typically much higher ticket than what some of these SMBs or NBFCs may be offering as their core product.

Many of these SMBs would offer loans up to, let’s say, INR 10-15 lakhs in India (approximately $12,000-$18,000); however, even in the small business sector for export-import, the credit requirements typically start with something like $50,000-$60,000 at the lower end, going up to $1-2 million, hence the segment still remains underserved.

How much funding has Drip Capital received so far? Do you have any funding plans in the future?

We think of our funding in two different buckets. Because we are a trade financing platform, we need to continue to raise equity in order to build a platform and scale operations.

We have raised four rounds of equity funding so far. The latest was a Series C, and so far, we’ve raised close to $525 million in equity and debt funding.

In order to support the credit needs on the platform, we also need to keep raising debt capital or set up debt facilities, which is what allows us to continue scaling the platform.

We work with a couple of large institutions, including Barclays and EastWest Bank. We also have a number of family offices, wealth managers, and high net worth individuals (HNIs) who invest in Drip’s trade finance assets through our Notes programme. Drip provides investors with a predictable income of around 6-8% (net annualised). We have issued over $350 million in Notes since 2016 with $0 in principal losses or interest shortfalls.

So our capital raise is timed towards increasing capacity on the platform. We don’t have any funding rounds planned in the immediate term because we raised around the end of last year. Given the market uncertainty right now, we want to focus on execution through the rest of the year and perhaps evaluate funding opportunities next year. We, as a company, are cash efficient, so we don’t need funding to survive.

You founded Drip Capital in 2016. Could you give a snapshot of the growth you’ve seen through the years?

In 2016, we were a team of four or five employees. Today, we are close to 300+ employees globally across three offices. In terms of originations, when we started in 2016, we made about $1 million. Today, we do close to $150 million a month. In terms of customers, we have a presence in three different geographies, but we work with more than 6,000 sellers and buyers in 100+ countries.

When we started, though, it was really focused on one particular trade route – which is Indian sellers selling to US buyers, which we slowly expanded, and today serve traders globally. Overall, in the last two years, we’ve been consistently scaling up more than 2x year-on-year in terms of all metrics.

What’s next in the pipeline?

We started off with the goal of becoming a global trade finance platform; however, over time, as we interacted with our small business customers, we realised that there was a much bigger opportunity for us beyond just being a trade finance provider.

So, our plans are also evolving. We believe we have the opportunity to become a global trade facilitation platform, and that means that beyond financing, we can help these small businesses in other areas. So everything from relevant content, which helps them manage their business more effectively, to helping buyers connect with suppliers and vice versa. That’s how we think about our product portfolio. With financing being the core, I think we have an opportunity to add other kinds of offerings for our customers.

We will continue to expand globally. Over the next five years, I definitely see us becoming a lot more global, expanding across other markets – from LatAm to South Asia and across the US and Canada.