Supply chains form the backbone of international commerce, representing over half the value of global merchandise trade. They create vast numbers of jobs and lower the barriers for countries and companies to participate in the world economy. However, the finance underpinning supply chains is inadequate, leaving too many small businesses in emerging and developing economies cut off from the benefits of global trade.

Empowering Small Businesses to Thrive in the Global Marketplace

The Vital Role of Supply Chains in the Global Economy

Supply-chain networks bring together raw materials, parts, services, and other inputs from multiple countries, with goods often crossing borders several times for processing before they are finished, distributed, and marketed. These intricate webs of interconnected businesses are the lifeblood of the global economy, facilitating the flow of goods, services, and capital across borders. The firms within these networks depend on short-term supply-chain finance to avoid being squeezed between upfront payments to their suppliers and late payments by their buyers. Such financing enables a large share of global trade, and for small firms in developing countries, it is essential.

The Impact of the COVID-19 Pandemic on Supply Chains

The COVID-19 pandemic disrupted trade and markets globally, creating significant challenges for businesses in industries vital for developing countries. As consumers worldwide shifted spending from entertainment and travel to goods, these businesses faced cash-flow constraints due to the surge in demand and production. Garment producers, for example, needed financing to increase their purchases of inputs, even though payments from buyers would come only later. Supply-chain finance offered access to immediate funds, helping them manage working capital, stabilize operations, and contribute to easing the world's supply bottlenecks.

The Rapid Growth of Supply-Chain Finance

At the global level, supply-chain finance is one of the fastest-growing segments of trade finance, with BCR's latest World Supply Chain Finance Report estimating its value at around US$2.3 trillion. However, the benefits of this expansion are not evenly distributed. While large multinational corporations and well-established businesses have access to a range of supply-chain financing options, many small and medium-sized enterprises (SMEs), particularly in emerging and developing economies, remain underserved.

Bridging the Financing Gap for Small Businesses

The lack of adequate supply-chain financing for small businesses in developing countries is a significant barrier to their participation in global trade. Without access to the necessary working capital, these enterprises struggle to meet the demands of their larger trading partners, limiting their ability to grow and thrive. Addressing this financing gap is crucial for unlocking the full potential of global supply chains and ensuring that the benefits of international commerce are more widely shared.

Innovative Solutions for Inclusive Supply-Chain Finance

Innovative approaches to supply-chain finance, such as digital platforms, blockchain-based solutions, and alternative credit assessment models, hold the promise of expanding access to these vital financial services. By leveraging technology and data-driven insights, these solutions can reach previously underserved small businesses, empowering them to participate in global value chains and contribute to the overall resilience and dynamism of the global economy.

The Path Forward: Collaboration and Policy Support

Addressing the supply-chain financing gap will require a collaborative effort involving governments, financial institutions, development organizations, and the private sector. Policymakers can play a crucial role by implementing supportive regulations, incentives, and capacity-building programs to facilitate the growth of inclusive supply-chain finance. By working together to bridge this gap, we can unlock the full potential of global supply chains and create more equitable and sustainable economic opportunities for all.