Fostering Innovation through Supply Chain Finance in Indian MSMEs: A Fintech Embedded Solution

Abstract

Banks and financing institutions play crucial role in traditional supply chains by providing the necessary finance and related services. Because of the proliferation of technology and an increasing number of businesses operating across various sectors are mulling over the possibility of utilizing this opportunity to facilitate supply chain finance (SCF). There is a rise in the number of requests for risk-free financing solutions to assist the day-to-day operations of Micro, Small and Medium Enterprises (MSMEs), which results in the increased complexity brought about by globalization. However, there are many problems with implementing SCF solutions into place, which make it harder for MSMEs to get the money for their day-to-day operations. In pursuance of this, the present research aims to evaluate the possible challenges that hinder the implementation of SCF in Indian MSMEs. Study also targets to evaluate and analyze the factors influencing the application of blockchain technology in SCF solutions for Indian MSMEs. The study investigates the role of fintech-enabled SCF solutions for attaining sustainable financial performance by Indian MSMEs. This study also attempts to conceptualize and validate the impact of SCF by implementing fintech-embedded solutions on the Indian MSMEs’ financial performance. The decision-making variables are identified through literature review, along with the consultation with financial experts, MSME owners and academic scholars. The present study has used various multi-criteria decision-making (MCDM) tools like fuzzy theory, analytic hierarchy process (AHP), sensitivity analysis, total interpretive structural modelling (TISM) and MICMAC analysis to explore and analyze the factors affecting implementation of SCF solutions in Indian MSMEs. Further, the study proposes the hypothetical model for the sustainable financial performance of MSMEs and empirically validates it using structural equation modelling (SEM) to bring into light the possible areas of enhancing the MSME’s financial performance through implementing fintech solutions. The study’s findings suggest that mismanagement of cash flows and working capital management disruptions are acting as the most prioritized barriers to SCF. The external factor of cultural challenges has been prioritized as the minimum-influence factor that has the least negative influence on the operations of SCF in MSMEs. The ‘real-time exchange of information’ by which data can be accessed by any partner is a very easy and quick way and the ‘transparent platform’ by which the data and information remain secure, are the most influential factors affecting the application of blockchain embedded SCF in Indian MSMEs. The empirical study validated the proposed model and confirmed the effect of SCF as mediator between independent variables (information sharing, role of financial institution, market visibility, supply chain risk reduction) and the outcome variable (sustainable MSME’s financial performance). Additionally, the moderation effect through ‘fintech solution’ is tested positively between the independent variables (information sharing, role of financial institution, market visibility, supply chain risk reduction) and the outcome variable (sustainable MSME’s financial performance). Managers should focus more on management of inflow and outflow of finance in the business to reduce the chance of financial risks. The new blockchain-enabled SCF should be implemented to overcome challenges associated with traditional SCF. This study also would help small business managers and academia to implement the empirical model constructed to reduce the financial risk of MSMEs’ and achieve sustainable financial performance through fintech-enabled SCF solutions. The SCF is crucial for solving MSMEs' financial issues. However, SCF is still developing and has great research potential. This study was conducted in India therefore, generalizing it to the developed world is impractical. This type of analysis should be done in emerging and developed countries to determine small firms' financial feasibility. This study solely uses data from tier-one and tier-two cities from the four states of India, further study can be made by taking all states as a population to better understand the implementation of SCF in MSMEs.