ADB eyes finance program for cash-strapped SMEs
Published on 09 November 2012 Hits: 27 Written by MAYVELIN U. CARABALLO
REPORTER
A new finance program that will help cash-strapped small and
medium-sized enterprises (SMEs) in Asia and the Pacific, and improving
companies' access to affordable working capital is being created by the
Asian Development Bank (ADB).
On Thursday, the Manila-based lender announced that it is creating a
Supply Chain Finance Program (SCFP) that will bring in over $1 billion
to unlock financial resources caught in the supply chain, and thereby
improve companies' access to affordable working capital that helps
support jobs and incomes.
ADB said that it 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 lender noted that 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 [days] 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.
ADB explained that 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.
With this condition, the lender stated that 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 also remarked that it has made substantial progress in supporting
trade through the Trade Finance Program (TFP), which has an annual
turnover of about $4 billion without any defaults and which focuses
support for trade in the poorest developing Asian countries, adding that
the program is limited to assuming bank risk for cross-border transactions.
The lender further said that the new SCFP will complement the TFP by
assuming non-bank commercial risk for both cross-border and domestic
transactions within a supply chain.
The new program will also provide affordable finance to many SMEs, some
of which may have traditionally not been considered bankable, it added.
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