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Polytrade taps crypto liquidity to provide invoice financing

Written by Stephanie Pearl Li Published on     5 mins read

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Polytrade wants to leverage blockchain technology to finance MSMEs while also enabling investors to earn profits on their crypto assets.

For many micro, small, and medium-sized enterprises in Southeast Asia, cash flows have topped their lists of concerns during the pandemic. For instance, over 85% of MSMEs in Indonesia said they did not have enough cash to continue operations if they faced a month-long loss of cash inflows, according to a survey conducted between March and May last year by the Asian Development Bank (ADB).

This headache goes hand in hand with the global trade financing gap that grew to a record high of USD 1.7 trillion in 2020, up 15% from 2018, led by rising economic and financial uncertainties created by the pandemic. In particular, women-owned SMEs reported a 70% financing rejection rate, another ADB study found.

Piyush Gupta, the founder of blockchain-based service provider Polytrade, a division of Hong Kong-headquartered financial consulting firm Riqueza Capital Group, has witnessed the difficulties that borrowers face first-hand. In 2014, he launched Riqueza Capital to provide invoice financing to MSMEs in the region.

“In the first couple of years of running the business, I was so surprised to see many brilliant companies that were not able to get enough working capital from banks or local trade finance companies, simply because of the lack of exposure,” Gupta said. Some of Riqueza Capital Group’s clients provide services or products to multinational brands such as Walmart, Ikea, and Nike, he said.

Business-to-business transactions usually take up to 43 days to settle, according to a report by trade credit insurer Atradius. Invoice financing allows suppliers and manufacturers to borrow money against unpaid invoices through a third-party lender like a bank or a financial institution. This shortens their working capital cycle and improves cash flow.

“For MSMEs, the only collateral available in trade financing is their invoice or the receivables. It proves that the company has sold the goods and is awaiting payments from its suppliers or clients,” Gupta said. As of 2020, Riqueza Capital Group has amassed a base of 5,000 borrowers who have funded over 250 firms with a cumulative capital of USD 500 million.

Polytrade was founded in the first quarter of 2021 as a step forward in Gupta’s goals. The platform seeks to facilitate invoice financing by connecting companies with crypto investors. “The whole concept of decentralization is that anybody who seeks finance can come on board, and anybody who wants to finance can also take part in it,” Gupta said.

While an array of DeFi lending platforms have arisen in recent years, including Aave, Compound, and Uniswap, there are only a few players in the invoice financing segment, including Australia-based Invox Finance and Dubai-based InvoiceMate. Polytrade is preparing to go live by mid-January 2022, and it wants to be a major competitor in this space.

The platform raised USD 1.2 million in May from investors like Sandeep Nailwal, the co-founder and CEO of blockchain scalability platform Polygon. Other backers include Master Ventures and Orion Protocol.

Southeast Asia is a primary target for Polytrade, according to Gupta. He said the company is in talks with a “notable trade financing firm” in Indonesia for a potential partnership. At the same time, he mentioned his intention to leverage the existing network of customers and investors of Riqueza Capital Group to join the platform.

The firm is also targeting the Latin American market. In October, Polytrade inked a partnership with Miami-based trade finance lending startup Marco Financial to deploy credit lines in Latin America.

Piyush Gupta, founder and CEO of Polytrade. Photo courtesy of Polytrade.

How does Polytrade work?

Polytrade enables investors to gain interest over their capital deposited on the Polytrade platform via stablecoins, including Tether and USD Coins, or through the company’s Trade token. On the other hand, borrowers can quickly get access to cash by selling their invoices at a discounted price on Polytrade.

The platform, which has been operating in beta mode since October 1, is structured into three portals. The first portal enables lenders to invest their crypto assets into a combined liquidity pool managed by Polytrade to dispense loans. The annual yield on stablecoins will be 5% to 6%, while the firm will pay a 10% interest rate on deposits made via Trade tokens, according to Gupta.

A second portal allows MSMEs to apply for loans by submitting their invoices and supporting “know your customer” (KYC) documents. Loans will be dispensed in US dollars and wired to borrowers by Polytrade, Gupta said. “The crypto liquidity will eventually be lent into the real world, as crypto is converted to fiat money for borrowers,” Gupta said.

The third portal enables buyers of services and goods from MSMEs to pay their invoices to Polytrade in fiat currency, Gupta added. Polytrade’s main stream of revenue will be generated from a net interest margin over the financed invoice. Gupta confirmed that the three portals are expected to officially launch by January 15, 2022.

Security the top priority 

Although DeFi platforms like Polytrade could help open up financing access for individuals and MSMEs, they could also be subject to hacks and data breaches. For instance, Poly Network, a DeFi platform that allows users to move tokens across blockchains, suffered a historic breach that drained USD 613 million from its coffers in August, although the hacker later returned nearly all the stolen assets, according to the firm.

Recent notable hacks also involved liquidity protocol Visor Finance, which lost almost USD 1 million on November 28. Weeks before, DeFi protocol AutoShark Finance suffered over USD 2 million in losses on October 29, while lending protocol Cream Finance lost USD 130 million worth of assets on October 27, according to data from blockchain security firm SlowMist.

Gupta said that security is of “utmost importance” to the firm. “We have seen so many hacks recently. Hackers are smarter than companies because they have much more time and tools to play around.” He revealed that Polytrade is set to start a bug bounty program with cash rewards for anyone willing to test the platform for vulnerabilities and bugs.

“We are hiring the best security audit companies to ensure that smart contracts are watertight,” Gupta said.

He remains confident about the invoice financing industry and its development alongside the blockchain. Polytrade has also recently launched an invoice management product called Polytrade Meta, which aims to assist companies in processing enterprise invoices and payments in the metaverse space. Gupta did not reveal details about the new platform but said that Polygon will be the company’s first client.

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