Supply Chain Finance and SMEs: Evidence from international factoring data

With supply-chains shifting and expanding into new regions of the world, the challenge for SMEs to accessing financing remains an important one; in many developing and emerging market economies, the capacity of the local financial sector to support new traders is limited. Moreover, after the financial crisis, several global banks have “retrenched”, for various reasons. In this context, supply-chain finance arrangements, and other alternative forms of financing such as through factoring, have proven increasingly popular among traders.  This paper shows that factoring has a positive effect in allowing SMEs to access international trade, in countries in which it is available. Factoring also appears to be employed by firms involved in global supply chains. We employ for the first time data on factoring from Factor Chain International (FCI), the most extensive dataset on factoring available at the moment, for the period of 2008-2015. Using an instrumentation strategy we identify a strong, stable effect of factoring on SMEs access to capital for some of the main traders in the world.  

 

No: ERSD-2016-04

Authors: Marc Auboin, WTO — Harry Smythe, Josef Korbel School of International Studies, University of Denver — and Robert Teh, WTO

Manuscript date: July 2016

Key Words:

trade credit, financial crisis, trade.

JEL classification numbers:

F13, F34, G21, G23

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Disclaimer 

This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its author. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members' rights and obligations under the WTO. Any errors are attributable to the author.

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