How can supply chain finance serve as a catalyst for growth in the textile industry

Supply Chain Finance is revolutionising the textile industry by tackling key challenges such as cash flow constraints and delayed payments,informs Munindra Verma.

India’s textile industry is a key driver of economic growth, contributing 2.3 per cent to GDP, 13 per cent to industrial production, and 12 per cent to exports. In the first half of FY 2024-25, India’s textile and apparel exports reached $17.660 billion, making up 8.28 per cent of the country’s total merchandise exports. The industry is expected to grow at a CAGR of 10 per cent, reaching a market size of $350 billion by 2030, including $100 billion in exports. Globally, India ranks as the second-largest textile producer, contributing to a multi-trillion-dollar industry. The global apparel market is expected to grow at a CAGR of per cent, reaching $2.37 trillion by 2030, while the global textile and apparel trade is set to grow at a CAGR of 4 per cent, reaching $1.2 trillion in the same period.

Despite its prominence and steady growth, the textile sector faces many challenges. The industry grapples with working capital constraints, delayed and uncertain payments, rising input costs, counterparty risks, and the complexities brought on by global geopolitical disruptions. The need for an enduring, efficient and effective supply chain ecosystem has never been more crucial for the textile sector to thrive amid these trials.

Current challenges facing the textile sector

India’s textile industry, despite its growth, faces persistent challenges that hinder its full potential. One of the most pressing issues is working capital constraints including global risks. The textile industry operates on high-volume production cycles, where financing needs are ever-present to maintain smooth operations. Delayed payments from customers (sometime default too) and a weaker vendor ecosystem can worsen cash flow problems, making it difficult for businesses to meet day-to-day operational needs.

Furthermore, rising input costs, particularly for raw materials like cotton, and the volatility in shipping costs due to geopolitical tensions, further strain the industry’s ability to scale and maintain profitability. The textile sector must build robust supply chain ecosystems to address these issues and sustain its growth trajectory. This is where Supply Chain Finance (SCF) solutions can make a significant impact.

The role of supply chain finance in the textile sector

SCF optimises liquidity flow within the supply chain ecosystem, allowing businesses to access funds quickly and efficiently. Solutions like invoice discounting, factoring, and ITFS (International Trade Finance Solutions) help smooth transactions between buyers, suppliers, logistics providers, financial institutions, and insurers. These solutions improve liquidity, minimise risks, and reduce the financial burden on textile businesses, enabling them to operate efficiently and scale faster.

How SCF aligns with the textile industry needs

SCF addresses various industry needs mentioned as below;

• Addressing working capital requirements: The textile industry is a cash-intensive sector. The need for working capital is immense, from procurement of raw materials to labor costs and shipping expenses. SCF solutions help textile businesses secure funds quickly, supporting production cycles and enabling smooth operations without depending on external loans or delayed customer payments.
• Ensuring timely payments to suppliers and vendors: The textile industry’s vast supply chain encompasses everything from raw material suppliers to garment manufacturers and distributors. SCF can help ensure timely payments across the entire network, maintaining strong supplier relationships and avoiding disruptions.
• Enabling small and medium exporters to compete globally: Small and medium-sized enterprises (SMEs) in the textile sector often struggle to compete globally due to limited liquidity. SCF can give these businesses access to capital, improving their ability to fulfill larger orders, negotiate better terms with buyers, and increase their competitiveness.
• Efficient risk transfer & management: Off-balance sheet solutions, supported by overseas import factors or trade credit insurance providers, facilitate early payment realisation while minimising risk.

Geopolitical crises and the rising importance of SCF

Global geopolitical tensions have disrupted supply chains worldwide. Shipping costs have surged, and raw material availability has fluctuated, challenging textile exporters. SCF offers a solution by providing a steady flow of funds, mitigating the risk of supply chain disruptions, and ensuring that businesses can meet the demands of international buyers without worrying about financial uncertainty.

For example, SCF solutions have helped textile businesses in India manage cash flow during periods of instability, allowing them to fulfill orders on time, maintain supplier relationships, and keep their operations running smoothly, despite global challenges.

Enhancing the value proposition of Indian textile exporters

SCF can propel exports by adding these values to the exporters;

1. Accelerating exports with SCF: The Indian textile export sector has grown significantly, with apparel exports rising by 17.30 per cent in September 2024. These solutions empower exporters to fulfill larger and more frequent orders without the financial strain of waiting for payments. This ensures they can take on new business opportunities, accelerate their growth, and maintain consistency in their production processes.
2. Driving competitiveness through innovation: SCF platforms like ITFS and cross-border trade finance are revolutionising the textile sector by digitising financial transactions. The use of technology streamlines financial processes, making them faster and more efficient. Additionally, data insights from SCF platforms enable better financial planning and operational efficiency, allowing textile businesses to make informed decisions.
3. Strengthening the supply chain ecosystem through ITFS platforms: India has been making significant strides in enhancing its trade finance capabilities, thanks to the establishment of the International Financial Services Centre Authority (IFSCA) and International Trade Finance Services (ITFS) in the Gujarat International Finance Tec-City (GIFT City). These initiatives are poised to transform the landscape of trade finance in India and, in turn, boost the country’s exports.

Future prospects

India’s textile industry is poised for significant growth, driven by government initiatives like PM MITRA Park and the Production Linked Incentive (PLI) scheme. By 2030, the sector is expected to reach a $350 billion market size. SCF will be pivotal in this growth, offering stability for businesses to adopt sustainable practices, enhance profitability, and reduce environmental impact. These platforms set a new standard for the sector, ensuring that textile businesses can thrive in a competitive global market while embracing sustainability.

Conclusion

In a nutshell, Supply Chain Finance is revolutionising the textile industry by tackling key challenges such as cash flow constraints and delayed payments. It helps businesses improve liquidity, ensure timely payments, and enhance competitiveness in global markets. The Indian textile sector stands to benefit significantly, positioning itself for long-term growth and flexibility. As the industry continues to innovate and expand, adopting these financial solutions will be crucial for exporters to stay ahead. With government support and increasing demand for technical textiles, the market is projected to reach US$ 209 billion by 2029. Leveraging these financial tools will strengthen India’s position as a global leader, ensuring sustained growth. The future looks promising, driven by strong domestic consumption and export demand, alongside major initiatives to boost the technical textile sector.

About the author:

Munindra Verma is the Chief Executive Officer of M1NXT. Verma, a seasoned banking professional with over 27 years of experience in corporate and transaction banking, brings wealth of knowledge and expertise. At M1 NXT, Verma is focused on building and establishing the company’s position as a trusted Trade Finance solution provider.