A new video by the Asian Development Bank (ADB) explains how Supply Chain Finance can boost small and medium size enterprise (SME) growth throughout the region.

The driving force of Southeast Asian economies, SMEs, according to the Asean SME Agencies Working Group (Asean SMEWG), make up over 90 per cent of businesses in the Asean Economic Community (AEC); employ between 51.7-97.2 per cent of AEC member countries labour, and contribute 30-53 per cent of Asean member states’ GDPs.

However, SME growth is hamstrung, with many unable to receive loans and other forms of financial support from banks. Supply Chain Finance solves this problem by taking advantage of SME suppliers’ higher credit ratings to provide SMEs with the finances they need.

Typically, SMEs buy goods from suppliers and commit to paying for them later, usually 30-180 days after the goods are received. With Supply Chain Financing suppliers can request early payment from a financial institution. The SME then pays the financial institution when the initial invoice is due. This process lowers the risk of investing in SMEs, enabling them to receive finances they would have had to wait for otherwise.

ADBs triple-A credit rating enables financial institutions to develop Supply Chain Finance programmes by funding or guaranteeing transactions for pre-approved buyers.

Using this method of funding can provide significant benefits for SMEs and for Asean economies. By reducing the disadvantages SMEs face in the market, Supply Chain Finance allows for the growth of new SMEs, in turn spurring increased economic growth and employment in the Asean Economic Community.

The ADB is actively working with partner banks throughout the region to see wider implementation of Supply Chain Finance, including earlier in the supply chain cycle. For more information see the ADB Supply Chain Finance Program Brochure.

Feature video uploaded to YouTube by Asean Development Bank

Related:

Chinese banks to suffer supply chain finance shift (Global Trade Review)

Ex-Citigroup CEO Invests In Supply Chain Finance Startup (Pymnts.com

ADB’s Supply Chain Finance Program and Standard Chartered Bank (ADB)