ADB ups support for region’s trade finance

ADB ups support for region’s trade finance

The Asian Development Bank (ADB) and the OPEC Fund for International Development have signed an agreement to support trade in emerging Asian countries under the ADB’s Trade Finance Program, according to a news release.

The risk distribution agreement will support a projected incremental trade flow between US$800 million and $1.2 billion in countries with limited financing from priv-ate financial institutions.

According to the news release, the Trade Finance Program (TFP) fills private-sector market gaps in trade finance, providing guarantees and loans to more than 200 partner banks to financially support companies engaged in import and export activities.

The program operates in 18 developing markets, supporting hundreds of small and medium-d enterprises in developing parts of Asia.

Steven Beck, a senior investment specialist in ADB’s private sector operations department, said TFP currently works with ACLEDA bank in Cambodia to support trade and SMEs in the country.

He said the gap that TFP fills is the one between importers’ and exporters’ banks.

“From our experience, banks from more developed countries may not be familiar dealing with the banks from our developing member countries,” he said.

“ADB’s TFP steps in to provide guarantees to cover the transactions. The actual trade finance gaps have not [been] quantified. This is one of the challenges the industry faces.”

In Siphann, senior vice president and head of the credit division at ACLEDA bank agreed there are private sector market gaps in trade finance in Cambodia, because of a lack of capital and collateral, a lack of skill and knowledge on international trade, as well as a lack of good business structure and infrastructure.

“Medium enterprises do not have enough financial capital to engage in import [and] export activities,” he said. “For small enterprises, most of them focus on local business rather than international trade. “It is necessary to have more financial support, such as a guarantee scheme.”

Cambodia’s exports grew by 13.5 per cent annually and imports by 12.3 per cent between 2000 and 2009, according to the ADB.

But with 2.2 per cent, Cambodia’s share in the total 2009 exports to the world by greater Mekong subregion countries, which do not include China, remains small.

Lun Yeng, executive director of the Federation of Association for Small and Medium Enterprises of Cambodia, said one of the reasons for the market gaps in trade finance was the fact the capacity of banks or finance institutions in Cambodia to offer the service regarding large-scale trade finance was still limited.

He said this made it difficult for the private sector to make transactions in terms of big amounts of credit.

According to Lun Yeng, banks still consider risks as being very high in Cambodia and there is no guarantee scheme to secure the private sector’s international trade operations.

phnom penh post