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Prospects for Growth in Supply Chain Finance Remain Strong

November 04, 2011

Despite concerns about economic recovery in the Eurozone, three-fourths of top European banks still believe growth prospects for supply chain finance remain “strong” or “very strong,” according to Demica’s latest research report on the supply chain finance market.

The research, which involved the top 40 European banks, showed that respondents:

  • anticipate annual supply chain finance growth rates between 10 percent and 30 percent per annum in mature markets, and 20-25 percent in emerging markets where the need for financing is particularly pressing to help cope with rapid expansion.
  • believe growth over the next few years will primarily be driven by developed economies such as the US and Europe, along with larger emerging economies including China and India.

In addition, survey respondents identified working capital optimization and reduction of supply chain risk as the primary drivers for establishing SCF programs in mature markets.  In emerging economies, access to liquidity and enabling suppliers to keep pace with buyers’ growth are the key motivations.

Significant challenges remain, however. For example, respondents said that, especially in emerging markets, legal and jurisdictional issues and access to technology platforms require further work to accelerate supply chain finance growth.

“The corporate credit squeeze triggered by the financial crisis has made companies much more aware of the need to optimize working capital and to protect their smaller suppliers in order to avoid supply chain disruptions,” Phillip Kerle, Chief Executive Officer of Demica, explained. “Particularly in emerging markets, suppliers might not have sufficient working capital and often have poor access to bank credit. By binding suppliers into a structured SCF programs, buyers can ensure the financial health of their suppliers and thus secure their supply chains.”

These study results represent a somewhat more cautious outlook compared to 2010 opinion, but as Demica points out, they illustrate the enduring appeal of supply chain finance, despite a slow economic recovery.

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