MANILA, PHILIPPINES - The Asian Development Bank (ADB) is creating a Supply Chain Finance Program (SCFP) that will bring over $1 billion to help cash-strapped small and medium-sized enterprises in Asia and the Pacific access capital that can help them grow.
The ADB is supplying up to $200 million for the SCFP, which will revolve at least twice a year because of the short-term maturities involved in supply chains. Furthermore, the $200 million is estimated to attract an additional $300 million, at least, in private sector investment through the SCFP.
"Many small companies currently face lags of 30 to 180 days between the time they ship goods and when payments are received, leaving them short of cash flow that forces some to slow production or delay the processing of other contracts," said Philip Erquiaga, Director General of ADB's Private Sector Operations Department. "This program will unlock financial resources caught in the supply chain and thereby improve companies' access to affordable working capital that helps support jobs and incomes."
The ongoing global economic downturn has exacerbated the challenges facing many companies, with buyers putting greater pressure on suppliers to extend their payment terms, and on distributors to shorten their payment terms. The SCFP will improve suppliers' and distributors' access to cash flow within a supply chain, meaning that they will be able to expand operations and employ more people.
ADB, an AAA-rated multilateral development bank, has made substantial progress in supporting trade through the Trade Finance Program (TFP) which has an annual turnover of approximately $4 billion without any defaults and which focuses support for trade in the poorest developing Asian countries. The program is limited to assuming bank risk for cross-border transactions.
The new SCFP will complement the TFP by assuming nonbank commercial risk for both cross-border and domestic transactions within a supply chain. It will provide affordable finance to many small and medium-sized enterprises, some of which may have traditionally not been considered bankable.