The difficulties for SMEs in accessing financing is an ongoing issue, as banks balk at know-your-customer requirements or seek to reduce their lending in the face of lower returns.
This has implications all the way along the supply chain for large multinational organizations.
|Adesh Sarup, ANZ|
"Banks need to be working with the components of the chains, not just with the biggest parts, to fully service their clients.”
Traditionally, supporting suppliers was limited to offering products such as post-shipment finance. This type of financing works by providing funding against a shipment that has already been made. Exporters send the shipment before receiving the funds, with the guarantee that the funds will be deposited once proof is given that the goods have been received.
This works when the funds are needed to finance the export, but it is limiting for companies depending on funds to obtain or complete the goods to be sent.
Something as simple as having one such break in the supply chain can stop a multinational corporate from fulfilling its orders.
Corporates are looking for solutions to ensure that such avoidable incidents do not disrupt their business. The banks have to look out for their corporates, even if this means taking on some of the possible risks.
Sarup says: “The bank needs to shoulder some of the weight of risk to the corporates. The bank needs to do more than cover the depth and breadth of the chain, but also to operate effectively within the chain.”
Standard Chartered launched its 'banking the ecosystem' concept last September to establish the link between each end of the trade flow. The bank worked with its clients to understand how their supply chains are becoming more complex, and develop customized financing plans to meet their needs.
By banking the ecosystem, the bank is looking to its corporate client as being the guarantee of the worthiness of its suppliers down the chain. While they might not be the most enticing proposition on their own, when they form an essential part of a much bigger company’s business, they become an attractive proposal.
And for banks that are trying to keep hold of their clients in a competitive business, having this level of trust can guarantee that they remain on their clients’ books.
Alex Manson, global head of transaction banking at Standard Chartered, says it is no small feat to cover a whole supply chain, adding: “Banking the ecosystem is a huge but valuable undertaking. Working with some of our largest corporate clients, we on-boarded over 1,000 suppliers and buyers so far this year.”
He says that although it is a complex offering, there has been a strong take-up, particularly for the bank’s clients based in Asia.
“The offering goes beyond simply providing supply chain finance and the process has to be fast as well as scalable,” says Manson.
There is undoubted benefit to the bank to have an overview on the full length of the chain, and the business resulting from it. In markets where growth is slow or where stagnant interest rates have slowed the rate of return, looking down the supply chain could bring about returns without additional risk.
If every supplier in the chain can benefit from having the assistance of its largest buyer, it secures the flow of business and ensures continued business for the bank.
A notable way to make the flows meet speed and scalability criteria is through digitization of information. This is another reason why Asian markets have been so receptive to the banking-the-ecosystem concept.
Manson says: “Digitization has happened readily in Asia because of the existing digital mindset and the level of comfort with mobile channels.”
The outcome is a wealth of information that corporates previously have not had access to.
“The real potential comes from what we can do with the data," says Manson. "Banking the ecosystem is a powerful proposition for a company to understand each step of its supply chain and, more importantly, the physical, financial and informational flows of the business.”