DG calls for Supply Chain Finance

Supply-chain finance is crucial for enabling global trade but remains inaccessible to many small businesses in developing economies, impeding their growth and participation in international commerce, contend Ngozi Okonjo-Iweala and Makhtar Diop in an article published by Project Syndicate October 23.

Okonjo-Iweala is Director-General of the World Trade Organization and  Diop is former minister of the economy and finance of Senegal, is Managing Director of the International Finance Corporation.

Supply chains represent over half the value of global merchandise trade and “create large numbers of jobs” by integrating inputs from multiple countries. However, access to the finance underpinning these networks is uneven.

“Supply-chain finance was a lifeline for many during the COVID-19 pandemic,” helping firms manage cashflow and stabilize operations amid increased demand.

Despite the global value of supply-chain finance reaching $2.3 trillion, “most businesses in developing countries remain on the sidelines,” hindered by weak legal frameworks, high costs, and limited infrastructure.

In countries like Vietnam and Cambodia, even though 50% of trade is supply-chain related, only 0.5% is financed by local institutions, causing financial strain and limiting opportunities for economic advancement.

The article highlights that increasing access to supply-chain finance, especially through tools like international factoring, can boost trade by 1% for every 10% increase in use. This would foster financial inclusion, raise incomes, and reduce poverty.

Multilateral lenders are urged to collaborate with governments and financial institutions to “strengthen legal frameworks,” promote digitalization, and provide financing and technical assistance, unlocking the full potential of supply-chain finance. Expanding access is described as “low-hanging fruit,” with the potential to advance employment, trade, and development goals.