The aim is to extend and expand the scope of its Supply Chain Finance Program (SCFP), helping more small and medium-sized enterprises (SMEs) in Asia and the Pacific address financing gaps and boost their contribution to the region’s economic growth and development.
ADB piloted SCFP by partnering with global banks to share risk in around 550 transactions involving SMEs valued at more than USD 500 million. The expansion allows ADB to take initiatives such as working with local banks and increasing the use of technology to close financing gaps for SMEs. The expansion will also support ADB’s plans to diversify the reach and impact of its supply chain finance business to more challenging markets, which have the largest trade financing gaps relative to size.
SMEs have an important role in helping close the global trade finance gap, which stands at USD 1.5 trillion, according to ADB’s Trade Finance Gap survey, with 40% of this gap coming from the Asia and Pacific region and 74% of rejected trade finance transactions coming from SMEs. This is exacerbated by the fact that traditional financial institutions deem SMEs as a higher risk segment that incurs higher transaction costs, justifying the need for program’s like SCFP to fill the gaps.
Supply chain finance represents a different way of assessing SME risk. Rather than focusing on balance sheets and collateral, which tend to be weak at SMEs, supply chain finance focuses on the history of performance, longevity, and nature of relationships within a supply chain. The SCFP reflects ADB’s confidence that widespread adoption of this different approach to SME risk assessment could have a meaningful impact on the financing gap.
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