To make overseas exports easier for Indian companies, especially SMEs, Denmark-based AP Moller – Maersk, one of the largest container shipping companies globally, has set up a new business vertical, Maersk Trade Finance.
In a nutshell, Maersk Trade Finance is a digital platform with pre-shipment and post shipment credit facilities. It enables exporters – manufacturers or traders – to not only get the cargo shipping services online but also apply for funds that can be used either to pay for the shipment or to invest in new orders.
India is a pilot country for such services, followed by Singapore, the Netherlands, Spain, the US and the UAE. The funds are provided to Indian exporters in foreign currency as, being a foreign entity in India, Maersk cannot lend in rupees. It cannot finance imports either. In future, the company may consider applying for a banking licence, provided there are no alternate ways to expand the trade finance services in India.
“Right now we are writing off loans from our own balance sheet. We’ve written off about $60 million for India and we intend to give about $200 million in the next 12-18 months,” Vipul Sardana, CEO, Maersk Trade Finance, a former banker who joined Maersk in 2012, told BusinessLine.
In India, Maersk has contracted 95 companies so far, 90 per cent of which are SMEs. The funding is provided in foreign currency, which is linked to LIBOR. According to Maersk, the rate range from LIBOR+2.5% to 5.5%, which is determined based on the financial health of the company and its history, if exists, with Maersk.
“Typically, SMEs do not get foreign currency funding, which we are able to provide, hence reducing their overall cost,” Sardana added.
For Maersk, which has around 7,000 customers in India and, according to the company, enjoys 18 per cent market share here, the new trade finance vertical could not only generate additional revenue but help growing market share also, especially in the SME sector. Cost, time and ease of access to funding are the features that Maersk is betting on. Unlike banks that generally provide trade finance, Maersk does not look at the borrower’s balance sheet while considering the loan. “The goods shipped is the only thing we mandate, which serves as collateral. We do not ask for any other collateral or security, helping the SMEs to avoid the collateral trap,” Sardana said.
The advantage of Maersk, according to Sardana, is its ability to get information about the potential borrower and their buyers from the company’s database. Being in the shipping industry for more than 100 years with 130 offices worldwide, Maersk owns large data that can be used for analysing the clients’ history and possible risks. “The data of 100 years is something that no bank of financial institution has,” Sardana said.
The shortage of trade finance across businesses is cited as one of the main obstacles in the global commerce. Risks related to import-export operations compel lenders to raise the barriers for borrowers, making access to funds difficult for SMEs.