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Trade and Supply Chain Finance Program (TSCFP)

TSCFP works to make global trade and supply chains green, resilient, inclusive, transparent, and socially responsible.

Supply Chain Finance (SCF)

The SCF business of ADB’s Trade and Supply Chain Finance Program (TSCFP) aims to reduce financing gaps faced by small- and medium-sized enterprises (SMEs) to help them become part of the global trading system.

These efforts support growth in ADB’s developing member countries (DMCs) in a number of ways: they broaden private sector support for supply chain finance; improve cash flow to DMC companies to enable growth and job creation; allow companies traditionally not considered bankable to receive financing and; produce a demonstration effect that encourages financial institutions to undertake more supply chain financing.

SCF Products: How It Works

TSCFP provides funded and unfunded risk participations and guarantees through its partner financial institutions (PFIs), as well as by direct loans by ADB to obligors, to enhance the access of SMEs to working capital for supply chains.

Pre-shipment Finance

Pre-shipment financing is a short-term commercial finance option that provides capital to pay suppliers upfront for verified purchase orders. Businesses avoid depleting cash reserves or declining an order because of cash flow challenges. It allows suppliers to accept unusually large orders and adjust the loan basis up/down quickly to meet needs. If order volume drops, there is no long-term commitment so they can stop using it at any time. ADB’s Pre-shipment Financing is tied to a post-shipment, post-acceptance Payables Finance Program offered by the PFI to the Anchor.

Key Product Conditions:
  • Funded and Unfunded Risk Participation / Portfolio Guarantee
  • Maximum tenor of 180 days

Pre-shipment Finance

Key Benefits

For the distributor:
  • Finance raised against a strong credit rating with lower implied cost of funding.
  • Working capital optimization with improved cash flow forecasting and flexibility.
  • Alternative sources of funding with reduced use of credit availability from traditional banking sources.
  • Ability to manage significantly longer payment terms imposed by financially strong buyers.
  • Suppliers get additional working capital for the production and the purchase of raw materials.
  • Ability to obtain finance for the fulfilment of an order from a buyer when other forms of finance are financially less attractive or not available.
  • Improved cash flow forecasting and flexibility
For the Anchor:
  • Greater supply chain stability as the financing of the suppliers is covered.
  • Extension of payment terms by providing finance at the normal maturity of the invoices.
  • Cuts the cost of processing and reconciling supplier payments
  • Ensuring supply from the seller without committing its own financial resources.
  • Cost reduction as involvement of the Anchor can result in better financing rates from PFIs.

Post-shipment Post-acceptance Finance / Payables Finance / Supplier Finance

Post-Shipment Supplier Finance is the provision of funds to the supplier upon the delivery and acceptance of goods by the Anchor. The product is meant to finance sales receivable from the shipment of goods to the realization of the transaction. Under this product, the main risk is the repayment/credit risk of the buyer (Anchor). ADB’s credit risk assessment focuses on the Buyer.

Key Product Conditions:
  • Funded and Unfunded Risk Participation / Portfolio Guarantee
  • Maximum tenor of 12 months

Post-shipment Post-acceptance Finance

Key Benefits

For the distributor:
  • Finance raised against a strong credit rating with lower implied cost of funding.
  • Working capital optimization with improved cash flow forecasting and flexibility.
  • Alternative sources of funding with reduced use of credit availability from traditional banking sources.
  • Ability to manage significantly longer payment terms imposed by financially strong buyers.
  • Suppliers get additional working capital for the production and the purchase of raw materials.
  • Ability to obtain finance for the fulfilment of an order from a buyer when other forms of finance are financially less attractive or not available.
  • Improved cash flow forecasting and flexibility
For the Anchor:
  • Greater supply chain stability as the financing of the suppliers is covered.
  • Extension of payment terms by providing finance at the normal maturity of the invoices.
  • Cuts the cost of processing and reconciling supplier payments
  • Ensuring supply from the seller without committing its own financial resources.
  • Cost reduction as involvement of the Anchor can result in better financing rates from PFIs.

Distributor Finance (DF)

Distributor Finance is the provision of financing for distributors of large corporates (Anchor) to cover the holding of goods for re-sale and to bridge the liquidity gap until the receipt of funds from receivables following the sale of goods to a retailer or end-customer.

Key Product Conditions:
  • Funded and Unfunded Risk Participation / Portfolio Guarantee
  • Maximum tenor of 3 months

Distributor Finance

Key Benefits

For the distributor:
  • Working capital optimization permitting the distributor to bridge the liquidity gap between the purchase of inventory and payments received from its customers.
  • Increased credit for distributors based on the existence of actual financial or commercial support from the Anchor.
  • Credit for distributors at a lower cost than what would be available from traditional banking sources.
For the Anchor:
  • Sales growth (by providing additional finance to increase product availability through distributors, the finance of inventory and support for the prompt delivery of products).
  • Provide extended credit terms to the distributor or to ensure that additional funding can be raised with its support.

How to Join the SCF

Partner Financial Institution (PFI) is a bank or non-bank entity that operates a supply chain finance programs. PFIs must provide supply chain finance products or aim to launch supply chain finance business to suppliers or distributors in DMCs.

Information requirements Provision of information sufficient for ADB to conduct risk assessment, due diligence, and anti-money laundering (AML) and know-your-client (KYC) policies assessments
Credit rating BB on a global scale (minimum)
Experience and capacity At least one year of operational track record, as well the ability to track and monitor SCF transaction
Geographic Coverage ADB’s developing member countries
Risk management Strong credit management and well-tested internal rating, pricing systems and KYC/AML policies
Competent and adequate risk management teams
Average portfolio quality Default ratio for SCFP <2%
IT infrastructure Robust IT infrastructure, and able/willing to interface IT systems with ADB if necessary
SCF clients use PFI's trade IT platform for SCF transactions
Supports PFI's ability to track and monitor SCF transactions
Safeguards and integrity policies compliance Compliance with national and ADB safeguards and integrity guidelines as well as with policies on prudential requirements. All necessary clearances from the government and regulators shall be obtained.

Be a Partner Financial Institution

Program Highlights

Partner Financial Institution (PFI) Commercial banks or non-banking finance companies providing supply chain finance programs:
  • Minimum Rating of BB
  • Minimum of 1-year experience in supply chain financing
Anchor Corporate Banking client of the PFI:
  • Recommended by the PFI
  • Sound banking relationship at client/client group level and an adequate track record of an SCF Program with the PFI
Anchor’s Program (Suppliers/ Distributors) Located in ADB's developing member countries:
  • Recommended by Anchor
  • Good track record with Anchor
  • Solid production and delivery track record
Eligible goods Business operations and/or production must be in sectors not prohibited in ADB’s negative list
Transactions supported Cross-border and domestic trade transactions
ADB participation type Risk Participation (Funded or Unfunded)
Guarantee
Direct lending to SMEs
Exposure limits Varies based on credit assessment
Tenor Up to 12 months
Coverage Up to 85% risk sharing with PFIs
Currencies US dollar, Euro, Japanese yen, Chinese yuan
Local currency programs may be approved on a case-to-case basis
Price Market-based; ADB usually embeds the origination pricing of the PFI, calculated on its pro-rata share.