The European Bank for Reconstruction and Development (EBRD) is investigating ways of bringing greater use of supply chain finance (SCF) to its countries of operations.

To date, there has been a limited uptake of buyer-led supply chain finance in particular in the countries in which the bank operates, which are spread across Central and Eastern Europe, Central Asia, and the Southern and Eastern Mediterranean. This is due largely to the historical absence of large buyers who would drive such initiatives.

But this is changing: for example, the last few years have seen large retail companies such as France’s Carrefour and Auchan expand their presence across these regions, driven by pockets of real growth and rising household spending. The EBRD has supported much of this development: in 2016 it invested €5mn in the first ever Auchan hypermarket in Central Asia, which opened in Tajikistan. That same year the EBRD extended US$39.5mn to finance new Carrefour stores across Georgia. In 2018 Carrefour opened its second supermarket in Armenia.

“When companies like these large supermarkets come to these countries, they bring the need for SCF solutions with them,” says Dr Maria Mogilnaya, an associate banker within the EBRD’s Trade Facilitation Programme, who is leading the bank’s efforts in ensuring that its partner banks in the region are prepared to meet these new SCF needs.

Large retailers such as Carrefour are well known for using buyer-managed platforms – a structure whereby the retailer, as the buyer, owns and runs the whole SCF programme, managing the financing, supplier onboarding and liquidity themselves.

But, when entering markets such as Armenia, local financial support has proven to be a sticking point, as the resident banks are often ill-equipped to structure the necessary financing facilities that will meet the buyer’s requirements across their entire supply chain. Case in point: away from the support of the French banks in its home market, Carrefour was unable to find what it needed in terms of a local finance solution in Armenia.

“That’s the main problem, and why we are looking into this,” Mogilnaya tells ITFA. “We need to equip our partner banks with the knowledge on how to tailor-make the financing for such products.”

Plan of action

Mogilnaya explains that the first step is to understand and map out what the bank’s partner banks have been doing in this space. Armed with this information, the EBRD will then evaluate how best to offer support to progress these initiatives.

“My task this year is to find out exactly what we, as the EBRD, can do,” she says. “Not only do we want to show best practice, but we also want to see if there is a need for technical assistance, capacity building and help with using technology.”

The EBRD is not limiting its foray into SCF to buyer-led structures alone, and is casting a wide net as to what constitutes supply chain finance. Mogilnaya explains that the bank has “no specific preference” when it comes to its support of SCF instruments, as it is dependent on the level of understanding amongst the counterparties in each individual country. “Even though local legislation may allow for the use of certain instruments, whether or not it is used by a local bank will depend on how well they understand it,” she says.

For its part, the EBRD will also be looking to see if its own financial instruments – guarantees and cash advances – can be adjusted to meet the needs of its partner banks in their provision of SCF.

As supply chain finance and the ecosystem around it continues to evolve, an increasing focus on new technology to unlock capital will be key. “Our partner banks’ clients are growing and becoming larger and more sophisticated: the means by which they financed them five years ago will be obsolete in five years’ time,” says Mogilnaya. Partnerships will be crucial to the EBRD being able to help the banks find new ways to support their clients. Mogilnaya hopes that EBRD partner banks which are confirming banks, and can assist with best practice in this field, will be amongst those that lend their support.

Dr Maria Mogilnaya will be moderating the panel discussion on “Supply Chain Finance in the CEE – a dream in the making?” at the annual ITFA conference taking place in Budapest, Hungary from 4 – 6 September.