The views expressed in this presentation are the views

of the author and do not necessarily reflect the views

or policies of the Asian Development Bank Institute
(ADBI), the Asian Development Bank (ADB), its Board
of Directors, or the governments they represent. ADBI
does not guarantee the accuracy of the data included
in this paper and accepts no responsibility for any
consequences of their use. Terminology used may not
necessarily be consistent with ADB official terms.

Supply Chain Finance

Opportunities for SMEs
Paul Vandenberg

Workshop on

SME Development in Emerging Asia:

Integration to the Global Value Chain
Shanghai National Accounting Institute
2-3 November 2016, Shanghai, PRC
Organized by: ADBI, AFDI and CAREC Institute

Thammasat University
Bangkok

Invoices
Sellers

Standard finance

Financing TO
the value chain

Financing provided
directly to SMEs from
outside the value chain
(i.e., traditional finance)

Value chain finance

SMEs
In Value
Chains

Financing THROUGH
the value chain

Financing of SMEs from

receivables from other
(large) firms in the value
chain

SCF
Allow SME to get finance based, in most cases, on its
receivables
In most cases, goods have been already shipped by
SME (seller) to buyer
But payments terms allow buyer not to pay
immediately
Can be 30 days, 60 days, or other figure

Delayed payment creates cash flow constraint for SME

It needs to pay its suppliers

It needs to pay costs, including wages, occurred on the
order
It needs to purchases new suppliers for next round of work

Players
SME

Supplying larger firm within a value chain

Requires prompt access to payment
Needs payment to pay its own suppliers

Large firm

Dependent on parts, components, materials suppliers

Good credit standing with financial institution

Bank (or other financial institution)

Willing to provide finance to SMEs

But concerned about risk and repayment of SME

Other service firms

Logistics
Fintechs

Step 1

SME delivers supplies

(parts and components)

SME

Large firm
Step 4

Large firm pays bank

by end of credit
period

Bank
Step 3

Bank releases immediate

payment to SME

Step 2

Large firm confirms to the bank that

supplies have been delivered

Magnitude
Use of SCF has increased immensely

But still much more can be done to tap this source

of finance

Europe uses it in a major way

Also growing in Asia

Companies, aside from banks, are engaged

factoring firms
logistics./verification companies
IT based intermediaries and platforms

Global Market of

Supply Chain Finance

Total Assets

Current revenue from SCF

$ 2 billion

(Potential source
of SCF)

$1.3 billion
Potential additional
revenues from SCF

McKinsey and Company, 2015

Turnover in billions
of US dollars
2015

25%
66%

Source: Factors Chain International (FCI)

Global Factoring Market

Asia
Hard to get good data

That is comprehensive and well-defined

Date on factoring

Factor Chain International (FCI)

Tries to cover the globe
Data on members and non members (?)

FCI data on Asia

China dominates (over 60% of Asian factoring)

Japan, Taiwan, Australia, Singapore, Hong Kong
All above $30 billion in annual turnover

No. of factoring
companies

Share of factoring
that is domestic (%)

Total Turnover
(US $ millions)

PRC

--

64

385,732

Japan

98

59,229

Taiwan

22

25

57,599

Australia

15

100

45,649

Singapore

57

42,522

Hong Kong

17

23

36,537

Korea

19

59

14,313

Thailand

16

99

4,825

India

10

68

4,044

Indonesia

100

745

Vietnam

15

366

Malaysia

30

361

Sri Lanka

86

127

Emergence of SCF market

Developed from early 1990s

Expanded after the global finance crisis (2007-08)

Factors for its expansion

Globalization of production and trade

Expanded buyer-supplier links across borders

Regulatory changes

Basel II Capital Accords

Cost and scarcity of finance

Part of global credit crunch

Technology innovations

Development of innovative IT arrangements

Reduced use of letters of credits

Increasing role of fintechs

SCF was conducted by global universal banks
95% in 2005

SCF is coursed through fintechs

10-15% currently

Emergence of fintechs
Marrying finance and (IT) technology
Creates new type of financial firm and platforms

Paul Vandenberg

Thank you

Visiting Professor
Faculty of Economics
Thammasat University
Bangkok, Thailand
paul@econ.tu.ac.th
Currently on leave from:
Asian Development Bank
Manila, Philippines