How supply chain finance lends itself to Asian markets

The basic concept behind supply chain finance is that a bank (the ‘Financier’) provides credit support for the distribution of goods and services (domestically and internationally) by a large number of small- and medium-sized enterprises (often those with a low credit rating) to a given buyer which may be a ‘blue-chip’ entity with a high credit rating (the ‘Buyer’).

The credit is in the form of early settlement of the invoices of the Buyer’s suppliers (the ‘Suppliers’). However, the Financier does not take security for this finance from those Suppliers. Primarily, the Financier relies on the direct covenant of the Buyer (which is, effectively, its customer) for reimbursement. The example often given of a typical Buyer is a supermarket chain with Suppliers in emerging markets.

This form of finance is a new product in the armoury of banks and finance houses in Asia…

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