The Asian Development Bank (ADB) is a 50-plus year old regional development bank headquartered in Manila, with the vast majority of members from the APAC region and greatly influenced by both Japan (all ADB presidents have been Japanese) and the U.S.
In a piece published by ABS-CBN News, the ADB is recommending greater support for small and medium-sized enterprises (SME) in the form of supply chain finance (SCF). This is not necessarily anything new since the ADB published a study several years ago indicating there was roughly a $1.7 trillion funding gap for needed credit to further grow regional businesses, with the greatest shortage among SMEs and women-owned businesses. This particular article from ABS-CBN News indicates that the ADB thinks this gap has grown to more than $2 trillion by now. According to an ADB official, SCF is a “new innovation,” which is not really the case. Members of the service will know about various research papers that we have made available around developments in SCF during the past decade.
While it may be true that there have been innovative technology advances during the past several years—timely enough given the impact of pandemic lockdowns on supply chains and cash flow (again, more severe in the SME space)—the SCF concept has been alive and well for decades.
Recent advancements include the availability of general funding marketplaces for both buyers and suppliers, meaning that short-term liabilities and assets can be more easily traded by various players to add liquidity around global trade. Tools such as reverse factoring have become popular methods for companies to support the long tail of their supply chains if they so choose. However, the age old problem of credit availability for lesser known and smaller firms around the globe to finance their cash cycle and grow the business (or just keep the doors open) remains an issue, as the ADB points out.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.