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ADB increses firm production to support SMEs

ADB's Board of Directors has approved USD 100 million in additional financing to expand the scope of its Supply Chain Finance Program (SCFP).


ADB
Updated: 26-03-2018 09:31 IST
ADB increses firm production to support SMEs

SMEs have an important role in helping close the global trade finance gap, which stands at USD 1.5 trillion. (Image credit: Wikipedia)

The Asian Development Bank's (ADB) Board of Directors has approved USD 100 million in additional financing 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 bolder 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.

"We're really excited about this opportunity to move our supply chain finance business to a different, more innovative place," said Steven Beck, Head of Trade and Supply Chain Finance. "When the SCFP started in 2012, supply chain was a completely new business for ADB, which traditionally focuses on infrastructure and financial institutions. We have gained experience during the pilot and now it's time to be bolder and more creative in our efforts to close SME finance gaps".

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 percent of this gap coming from the Asia and Pacific region and 74 percent 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.

(This is a reproduced ADB news as it is. Devdiscourse bears no responsibility towards grammatical or factual errors that may have been presented in the report.)