Michiel Steeman

Governmental Policy

The relevance of supply chain finance models is also gaining ground amongst governments in Europe as they are actively looking for alternative forms of financing to stimulate research, innovation and growth. Horizon 2020, the EU framework program for Research and Innovation that will be launched in 2013, highlights two important finance themes: access to Risk Capital and SME Finance. This was reflected in the European Commission hosting several sequential panel discussions in 2011, with the aim help to refine the design of a new generation of financial instruments for Risk Capital and SME Finance.

Policy makers are particularly keen to adding non- traditional bank financing instruments as a tool favourable for SMEs. The European Commission recently launched its Late Payments Directive (implementation deadline March 16, 2013) to reduce payments terms to 60 days.

The traditional view of regulators and financiers is that such initiatives are to be financed from outside the supply chain through banks, investors and private equity. Governments are now looking to stimulate new structures to improve the framework conditions for companies to provide or facilitate debt and equity financing from within the supply chain. This will improve access to risk capital and financing for small and medium sized companies such as advocated in Horizon 2020.

The European Parliament in its Industrial Policy Communication update of 10.10.2012 (COM(2012) 582 Final), calls for consideration of SCF as an alternative to the traditional banking finance, and hints at possible revision of the Markets in Financial Instruments Directive (MiFID). At the same time it stresses the need of prudential consideration by regulators.

The World Bank, as part of its Financial Inclusion and Infrastructure initiative has identified SCF as an approach to improve access to finance and improve trading opportunities for SMEs. At national level, politicians support the development of SCF, for example SCF being a topic within the Dutch industry policy on Logistics. In December 2012, the UK Prime Minister, David Cameron, announced a major SCF scheme, commenting that “this scheme will not only help businesses secure finance and support cash flow, but will help secure supply chains for some of our biggest companies and protect thousands of jobs. It can be a win-win, with large companies and small suppliers both benefiting from this innovative scheme” (“Prime Minister announces Supply Chain Finance scheme,” 2012).

An example of an applied policy for facilitating SCF is that of the Export-Import Bank of the USA - an independent federal agency - which actively supports Caterpillar by guaranteeing up to 90% of the liquidity provided by JP Morgan to Caterpillar’s small suppliers (Lawton, 2012). Other countries are following suit.With politicians picking up signals from the market, European programmes are beginning to address this topic. The European Union Directorate-General Enterprise & Industry has opened a consultation process on SCF in early 2013, with the goals to explore its role in this new market. The European Commission, in its Horizon2020 programme, highlights the importance of SME finance and access to Risk Capital, and identifies SCF as a promising approach, but funding instruments, to our knowledge, are not featured as a topic.
The promise of Supply Chain Finance is enormous according to researchers in the SCF area. The theoretical concept of moving from sub-optimal working capital management on a company level towards managing the financial supply chain with an integrated view on the most beneficial financial arrangements triggered several researchers to estimate the monetary potential of SCF