Asian Development Bank: $2 Trillion Financing Gap Is Holding Back Trade

A “huge financing gap,” estimated at $2 trillion globally, is holding back international trade.

Steven Beck, head of trade and supply chain finance program at the Asian Development Bank (ADB), told ANC that figure is up from $1.7 trillion years ago.

Small and medium-sized businesses (SMBs), especially those led by women, have been most impacted, with these underserved businesses being held back from optimizing their place in trade, job creation and development, Beck said, according to the report.

“The past few decades, there is an enormous impact that international trade and supply chains have had on development in Asia and the alleviation of a lot of poverty in the region,” Beck said. “But we’re not going to be able to maximize the gains from trade and supply chains in development if we aren’t able to fully include [SMBs] in that whole process.”

Beck told ANC that ADB has studied “deep-tier supply chain finance” and found that it would enable financing further into the supply chain, provide more support to smaller companies and increase resiliency.

In a Jan. 24 blog post on the ADB website, Beck wrote that supply chain finance is one of the fastest-growing parts of the financial world — with volume leaping from $330 billion in 2015 to $1.8 trillion in 2021 — but it has mostly benefitted Tier 1 suppliers and left SMBs behind.

Extending financing to the smallest suppliers in the supply chain would add jobs, increase economic growth and add transparency to supply chains, Beck wrote.

“Of course, if implementing deep-tier supply chain finance were easy, it would already be in wide use,” Beck wrote in the post. “There are hurdles to its full implementation.”

To overcome these hurdles, global trade must make more extensive use of digital technology, legislatures must define what deep-tier supply chain finance entails, and industry must determine their preferred methods of such finance so they can be approved by legislators and regulators, Beck wrote.

“With some effort and attention we can close that funding gap and drive transparency through supply chains to make them more resilient, green and socially responsible; deep-tier supply chain finance offers us a promising way forward,” Beck wrote.

In April 2022, Axis Bank — the third largest bank in India — signed an agreement with ADB to support supply chain financing products, including one-year working capital demand loans.