● Asymmetry of information
The solution (besides using traditional sources), uniquely and for the first time uses knowledge from multiple suppliers in real time about SME clients to determine credit worthiness of SMEs. Therefore it strongly reduces the asymmetry in information between the suppliers and the SMEs.
The solution also makes available this information to the re-financier, thus removing the information asymmetry between supplier and financier.
The solution creates credit ratings for informal SMEs based on information gathered daily by multiple suppliers to the SME about payment behavior, order size, facility status, inventory amount, owner / directors status etc. These ratings are freely available to the SMEs which they may use to obtain financing from other sources.
In this way the solution assists in removing the barrier for informal SMEs or SMEs with weak or no administration to have access to finance. This is achieved without the need for the SME to do anything.
● Lack of collateral
As suppliers visit their Micro and Small clients generally more frequent than monthly, cash can be collected immediately and inventories supplied reviewed. This reduces the need for immovable collateral.
● Lack of financial capacity
Suppliers can use the “delivery stop” to ensure the client pays. As a result clients have a stronger willingness to pay their suppliers compared to banks. Consequently SMEs with minimal financial capacity may be financed.
● Lack of SME access to skills
To participate in this scheme the SMEs just have to pay their bills on time and have a good relationship with suppliers. TREFI does not require SMEs to have well established accounting practices. TREFI allows the SMEs to focus on their core business.
● Unavailability of financial products tailored to SME needs
The product removes the usual concerns suppliers have to finance SME clients by
a) providing efficient tools to manage SME credits; and
b) removing the negative impact of increase of trade payable balances from the suppliers balance sheet.
By providing efficient credit to SME clients suppliers:
c) May increase sales to SMEs; and
d) May realise various operational efficiency improvements
Therefore suppliers will be willing to provide additional credit to SMEs covering all working capital needs.
As the solution charges each credit based on risk, it provides incentives the supplier to provide credit to the RIGHT SME clients.
● Lack of institutional capacity of financial intermediaries
The solution includes the establishment of a local agency that provides risk assessment and transaction execution, ensuring that participants have the right tools and knowledge to manage the risk.
● High transaction costs to serve SMEs
Suppliers do not incur additional operational cost if they have a larger credit outstanding to their SME clients.
In fact additional credit allows suppliers to save cost.
With additional credit the SMEs can have larger inventories, thereby reducing delivery cycles, reduce failed delivery and providing payment efficiencies.
Furthermore TREFI tools make the the suppliers risk management and collection processes more efficient.