Category: Retail and Apparel
Highly Commended: Asian Paints
Summing up: A distributor finance programme to support a company’s supply chain ecosystem – providing finance to a wide range of traders, including small companies with limited access to affordable conventional sources of finance
What the judges said: “Entrepreneurial in difficult emerging markets”
- First distributor finance programme associated with a company in the Indian paints industry
- Distributors enjoyed a reduction in the cost of finance by around 2 to 3 per cent per year
- The programme provided access to finance to small traders that may previously have had little to no established banking history.
Asian Paints is India’s largest paint company and the third-largest in Asia with a wide distribution network. It has a market share of more than 50 per cent in the domestic paints market and a 60 per cent share in the decorative paints sector.
It supplies around 50,000 dealers spread across various cities in India. More than 90 per cent of the company’s domestic sales take place via its distributors.
While Asian Paints has adequate access to funding at reasonable rates, it wanted to provide low-cost funding options to its distributors as well, many of which would otherwise typically rely on more expensive informal funding sources.
The programme aimed to provide unsecured funding to a wide range of distributors rather than restricting it to only large companies. Asian Paints wanted to look after its distributor network on which so much of its business depends, by helping simplify their financial needs and making finance options more cost-effective.
The proposed solution was complete without recourse to Asian Paints, with receivables taken off the company’s books once payment is received from the bank on behalf of the distributor. The distributor repays the bank on the pre-arranged due date.
To provide an element of comfort to the banks involved, Asian Paints provided a caveat that it would stop supply to distributors who were overdue to the bank by more than 15 days. Asian Paints also provided details on the past performance of dealers to ensure the banks could make an informed decision about whether the dealer could join the programme.
For some distributors, participating in the programme offered them an introduction to formal banking for the first time and has helped improve their business practices such as financial management and internal accounting capabilities.
It enabled them to have access to a lower-cost working capital funding option which meant they could buy more stock and extend credit to their customers. The financing could only be used to procure goods from Asian Paints.
Asian Paints has used the programme to improve its receivables and cash management which in turn boosted profitability. It has served as a useful marketing and relationship building tool with newer dealers.
Initially, around 200 distributors were targeted to join the programme, with more being brought on to the platform. Distributors typically benefited from a two to three per cent per year reduction in the cost of financing by joining the programme. Given distributor financing is not based on collateral, companies were also able to use any existing collateral to raise additional financing elsewhere if needed.
The programme is said to be a first in the paints industry, and other corporates in the paints sector are now looking at the benefits of implementing similar solutions.