Supply Chain Finance presentation on supply chain finance

Supply chain finance

1. SME DEPARTMENT , BANK ALFALAH
Supply Chain Finance
2/25/16

2. Definitions
Supply Chain = Series of actors and activities needed to bring a
product from production to corporate buyer.
Value Chain = Series of actors and activities needed to bring a product
from production to the final consumer.
Value Chain Finance = Credit or other financial products, services and
support services flowing to and/or through a value chain to address
the needs of those actors involve in a value chain

3. What is Supply Chain Finance
SCF is commonly perceived as a bank product structured around corporate buyer risks and,
therefore, benefiting SMEs that are direct suppliers to those buyers.
The small supplier benefits from the financing mechanism, which effectively allows it to
achieve early payment of invoices. Meanwhile, the corporate buyer benefits from longer
payment terms and a more robust supply chain.
SCF in the broader definition includes inventory finance, purchase order finance, and
various types of accounts receivable finance

4. Supply Chain Finance

5. Financial availability fluctuates
with business activity
SCF products are usually delivered by some form of revolving credit
facility.
This should be linked closely to supply chain transaction levels and, as
activity rises and falls, credit availability also rises and falls.

6. SCF Approaches
•Supplychain finance can be viewed as a series of tools
and mechanisms.
•It is also an approach that takes a systemic viewpoint,
looking at the collective set of actors, processes and
markets of the chain as opposed to an individual lender-
borrower within the system.

7. •Decisions about financing value chains are based on the
health of the entire value chain and not just on the individual
borrower.
•In value chain based finance, knowledge of the entire value
chain actors is required but for conventional financing
creditworthiness of the client and business in the criteria.
•Value chain financing focuses more on the payments to be
received from activities such as production and value-added
transactions

8. SCF Smallholder’s Perspective
•Without affordable financial services, reliable information on
market demand or direct market linkages, many small farmers
remain in the unprofitable trap of low-investment and low-return
production cycles.
•Smallholders who do have access to bank loans frequently
find the terms to be too rigid, the amounts too small or fees too
high to permit the kinds of investments that can significantly
increase production

9. •In some cases, small farmers borrow their working capital from
other non-financial participants within the VC (whether formal or
informal), such as input suppliers, associations, buyers or
traders.
•While borrowing from these sources may be appropriate in some
situations, it offers little transparency and can put significant
constraints on financing due to the lenders’ limited liquidity and
lending knowledge.

11. SCF –Demand Side
•The demand for agriculture finance starts with the producers’
need for finance for improved technology, inputs and the labour.
•The other actors in the value chain also need finance to smoothly
run their business of storing, processing and facilitating the
produce to reach to the consumers

13. SCF –Supply Side
•Both financial institutions and VC actors supply agricultural
finance.
•In urban areas, financial institutions tend to be the primary
provider of financial services.
•In rural areas, however, high transaction costs and risk
associated with agricultural production keep financial
institutions from playing as active a role

15. BRAC,
Bangladesh
Contract farming with
marginal farmers to grow
potato seeds
Technical support and
working capital
POTATO SEED
DEALERS
Grading,
Packaging and
selling
Payment
made directly
to BRAC
Payment made to farmers
after deducting the cost
COMMERCIAL
BANKS
Working capital
loans
Direct
Repayments
Buy back the seed
produced
Facilitating Role in Potato Value Chain :
BRAC, Bangladesh

16. Examples of Supply Chain Finance in Pakistan
Bill Discounting
CPR Financing
Grower Financing

17. Increasing Access to Finance
Traditional SCF based on corporate buyer risk increases finance
availability for SME suppliers.
Through SCF SME client could get access to bank finance based on its
supply chain collateral strength which they would otherwise can not
be able to access.

18. Financial Constraints
Financial intermediaries still lack desired depth in identifying the
value chain and the critical actors who are still under served.
•The available financial products and services are focused on stand
alone financing instead of value chain.
•The smallholder growers and the other actors of the chain are not
getting proper attention from the financial institutions.

19. Benefits
Supply Chain Finance can: Improve the overall effectiveness and
efficiency of the value chain by:
•Improving product flow and market security
•Improving financing opportunities
•Increasing investment and reducing risks for financing
•Applying new financial products and innovation
•Building stronger value chain linkages among chain actors

20. Benefits
In Nutshell supplychain finance is a transaction-based lending
approach:
•It is tailored to the needs of the value chains and its recipients
•Product flow and cash flow are the primary security; fixed
assets are of lesser importance
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