It is no coincidence that the global trade finance gap rose from USD 1.5 trillion to USD 1.7 trillion from 2018 to 2020, with SMEs accounting for over 40% of rejected applications, according to the Asian Development Bank (ADB)¹. Due to this, regulatory bodies such as the Organisation of Economic Co-operation and Development (OECD) has begun discussing how the overall supply chain, including larger enterprises could facilitate and enable SMEs' access to global trade.

The International Chamber of Commerce (ICC) estimates that up to USD 5 trillion of trade finance is needed for the gap to return to its pre-pandemic level². The demand for trade finance will remain strong, or even increase, as governments start to withdraw pandemic support like loans or grants. Fortunately, demand for trade finance created by various drivers can now be easily serviced thanks to technology.

The increasing drivers of supply chain finance

Earlier in the pandemic, larger corporates who were anxious to avoid disruption to their supply chains due to the failure of smaller suppliers were quick to respond. This resulted in a sharp increase in both the size and number of supply chain finance schemes launched to satisfy the urgent financing needs of smaller suppliers and distributors.

Another major driver is the shift of major supply chains into ASEAN as businesses seek greater diversification of manufacturing and suppliers. The Regional Comprehensive Economic Partnership also shows how Asia Pacific trade integration is growing and boosting intra-Asia trade flows. Collectively, these changes are creating new demand for supply chain finance, especially in low-cost markets.

Moreover, sustainability has also been a major driver of demand for supply chain finance, as it compels greater transparency and accountability in integrated supply chains, thereby reducing the risks of unexpected disruptions. The maximum benefit is achieved when this is supported by a robust mechanism that facilitates the categorisation, monitoring, and reporting of financing of sustainable activities.

"Different clients are coming to us with very specific objectives, targets and duration, we can then customise our offerings to serve them better," says Marc Leong, Head SME Banking at Maybank Singapore. "The conversations we're having ranges from present needs, transitory action and future expansions. We're not just talking about the theory anymore; we're moving straight into practice and creating financing solutions that will help them achieve their sustainability goals".

But to ensure that global supply chains can become more sustainable, fairer, and more inclusive, smaller players need to be able to access the same kind of support. The majority of carbon emissions in the world sit in the supply chain, with SMEs, so the possibility of sustainable development can only be opened up if they are also allowed to take advantage of trade and supply chain financing structures.

Going digital to reach further down the chain

One of the reasons behind the ever-growing trade finance gap is that large global banks simply can't reach smaller businesses. From complicated regulatory requirements to expensive onboarding processes, servicing SME clients is quite often cost-prohibitive, which deter wider uptake and delay the delivery of much-needed working capital. 

While such regulations are crucial to bolster the security of global financial system, unlike large firms with dedicated finance departments, typical SMEs operate with limited resources and do not necessarily have the capacity to collate the manual records required for applications. The good news is that these challenges are not unsurmountable and can be readily overcome with the right combination of technology and process.

"If there's one thing we've learnt in the past two years, it is that the answer to democratising access to almost anything at this point is digitisation," says Marc. "From a Maybank perspective, we have the digital tools, wide regional reach, as well as a deep expertise in sustainability, and we are thinking more and more about how we can bring all these closer to smaller companies across supply chains in ASEAN".

Maybank's TradeConnex platform for example offers a fully functional web-based trade financing service that allows customers to perform and monitor their trade finance transactions online anytime, anywhere. It is designed to increase the efficiency of trade finance processing while delivering a highly efficient system for reporting and tracing the status of the transactions and its documents.

In the case of e-commerce, supply chain finance solutions can achieve even greater efficiencies by taking advantage of real-time supply chain data and predictive analysis to finance buyers or suppliers. In addition, by combining financial robustness with sustainability objectives, supply chain finance powered by digital technology offers the opportunity to embed ESG improvements all the way down the chain.

Build it sustainably and they will come

Demand for supply chain finance will continue to increase rapidly over the next decade. Successfully fulfilling this demand necessitates overcoming a variety of obstacles, with most relating to speed and capacity for effective delivery. Beyond meeting both points, the ideal banking partner must also have the right expertise to ensure continuous compliance with sustainability.

Last year, Maybank Group set a target to finance and facilitate more than USD 12 billion by 2025 to advance long-term solutions that address climate change and contribute to sustainable development across ASEAN. Trade finance represents an important part of this commitment, covering structured trade and supply chain financing, as well as import/export services, all of which will integrate ESG criteria.

Not forgetting the SMEs, Maybank has been recognised as one of the key players in growing the community and selected as one of the six digital partners in the Start Digital Programme, an initiative by Enterprise Singapore (ESG) and Infocomm Media Development Authority (IMDA). The project aims to facilitate SMEs as they look at incorporating digital tools and expanding digital capabilities which indirectly contributes to closing the trade finance gap.³

Maybank is committed to provide liquidity to the suppliers that need it the most, as we believe the future depends on the ability of even the smallest businesses to continue to participate in global trade. Democratising access to sustainable trade finance will also empower global companies to evidence their ESG performance regardless of size, thus promoting sustainable development for a better future for all.

To learn more about how Maybank can help finance a next-generation sustainable supply chain across ASEAN, please reach out and connect with our team.

¹Global Trade Finance Gap Widened to $1.7 Trillion in 2020 | Asian Development Bank (adb.org)
²icc-trade-financing-covid19.pdf (iccwbo.org)
³https://www.maybank2u.com.sg/en/business/local-enterprise/sme/sme-smart-digital.page