Asian Development Bank (ADB) has illustrated the way in which Supply Chain Finance (SFC) can help the development of SMEs in Asean countries.
According to Asean SME Agencies Working Group (Asean SMWG), Southeast Asian small and medium size enterprises’ (SMEs) driving force makes up over 90% of businesses in the Asean Economic Community (AEC). In addition, SMEs employ between 51.7-97.2% of AEC member countries labour and contribute 30-53% of Asean member state’s GDPs.
Nevertheless, some SME’s growth is hindered by the inability 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. With SFC, suppliers can request early payment from a financial institution, while SMEs can pay 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.