Transaction Banking

Podcast | Using Deep-Tier Supply Chain Financing’s Potential to Unlock Capital

To discuss the paper and better understand how DTSCF can promote financial stability, risk management, and sustainability, Trade Finance Global (TFG) spoke with Tod Burwell, President and CEO of BAFT.

Via Trade Finance Global by Tod Burwell and Deepesh Patel

Deep-tier supply chain finance (DTSCF) is an innovative financial solution with the potential to unlock financing for smaller suppliers deep into a supply chain by leveraging the credit risk of the anchor buyer.

The latest whitepaper from BAFT (Bankers Association for Finance and Trade) and the Asian Development Bank (ADB), “Deep-Tier Supply Chain Finance: Unlocking the Potential”, explores some of the more opaque aspects of deep-tier supply chains. 

To discuss the paper and better understand how DTSCF can promote financial stability, risk management, and sustainability, Trade Finance Global (TFG) spoke with Tod Burwell, President and CEO of BAFT.

BAFT is a member of the Global Supply Chain Finance Forum (GSCFF), an organisation established in 2014 to develop, publish, and champion a set of commonly agreed standard market definitions for supply chain finance (SCF).

DTSCF and its differences from traditional supply chain finance 

DTSCF, a variation of the traditional forms of SCF, has the potential to reach micro, small, and medium-sized enterprises (MSMEs) deep within supply chains by allowing them to finance their payables based on the credit risk profile of the anchor buyer. 

According to the BAFT and ADB whitepaper, a program must have several core elements to be considered DTSCF. For example, it must be related to trade finance, driven by the anchor buyer’s supply chain, occur post-shipment, and be predicated on an irrevocable payment obligation.

Burwell said, “DTSCF allows an original receivable to be discounted in parts at multiple levels, with the benefits transferring down the chain.” 

It is a distinct form of payables finance as tier 1 suppliers are typically the main beneficiaries of a payables finance structure. 

Benefits for anchor buyers, suppliers, and financiers 

From a buyer standpoint, DTSCF creates greater resilience and transparency in the supply chain by creating value for lower-level suppliers through reduced costs and fraud risks. 

Burwell said, “In a deep tier structure, your tier 2 supplier who has presented an invoice to your tier 1 supplier also gets the ability to discount that invoice, and the tier 3 supplier that has presented an invoice to the tier 2 supplier, and so forth down the line.” 

From the seller’s perspective, DTSCF provides better access to financing at lower rates driven by the anchor buyer’s credit rating. As this is extended down the chain, sellers at each level can access more favourable financing rates. 

From a financier’s perspective, with many currently not financing MSMEs, this presents a way to grow natural client bases due to the increased visibility of deeper-tier suppliers.

There is also an opportunity to link ESG reporting once deeper levels of the supply chain are connected.

Burwell said, “DTSCF creates more efficient operations, which can help lower costs. As we see more ESG creeping into the structure of supply chains, it enables these lower-tier suppliers to achieve compliance and reporting requirements in the context of that supply chain.” 

Core implementation challenges 

DTSCF builds on several of the core elements of traditional SCF. Unfortunately, inadequate secured financing infrastructure has prevented the widespread adoption of SCF in many markets. Without that foundation, many markets are not prepared for a deep-tier alternative.

Currency impediments are also factors. While tier 1 suppliers often deal in major tradable currencies, suppliers further downstream are likely to work with local currencies that can be subject to tight FX control regimes. 

Burwell said, “One big challenge is having willing participants. You are dependent on everyone in the supply chain to be open to being transparent with everyone else. You start

with the anchor buyer, but if you are the tier 1 supplier, you need to be willing to open up about your own supply chain to your buyer.”  

According to the whitepaper, complex and onerous onboarding procedures also hinder the scalability of supplier-led financing offerings. The cost and effort required to onboard suppliers, particularly MSMEs, can be prohibitive for lenders, making it difficult to extend financing to the deeper tiers of the supply chain.

Despite the challenges, there are case studies of successfully implemented DTSCF programs. 

Successful implementation case studies 

One operation in China had reached 9 levels down the supply chain, reaching $70 billion over several years, with the average invoice totalling $77,000. 

Burwell said, “The smallest invoice we came across in this program was $15. Traditionally, this would be unthinkable because many financiers are not interested in a deal if the ticket sizes are that small. But the point of this is to provide value at the MSME level, where you will have smaller and smaller ticket sizes. If it can work for a $15 invoice, it can work for anything.”

Another example is a bank with about 1000 suppliers on a blockchain-based platform that reduced onboarding time by 75%. Given that many consider the supplier onboarding process alone responsible for holding back SCF scaling, this is critical. 

Burwell said, “Having the right technology and the structure where each of the tiers are onboarding their own supplier networks; if you can reduce onboarding time by 75%, you have something.” 

Next steps to scale and fully realise opportunities 

To continue advancing DTSCF, the two most important next steps are education and developing consistent legal frameworks.

On the education side, the industry must continue to engage with and communicate DTSCF structures and benefits. The more organisations know about a utility, the more they use it, and the more innovation will be added to existing structures. 

On the legal side, it will be important to create consistent legal frameworks to enable DTSCF on a cross-border basis. While some structures are based on contract rights with irrevocable payment undertakings, others are based on negotiable instruments. 

Burwell said, “The heavy lifting for us is going to be looking at the legal frameworks and how we can better enable cross-border legal frameworks to standardise the client agreements and onboarding processes to achieve scale.” 

BAFT Releases New White Paper on Deep-Tier Supply Chain Finance

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, and the Asian Development Bank (ADB) today released a new white paper, Deep-Tier Supply Chain Finance: Unlocking Potential, which highlights the potential for deep-tier supply chain finance (DTSCF) to bridge the trade finance gap, drive liquidity to the most underserved segments of the trade market and enhance visibility within global supply chains.

Deep-tier supply chain finance is an innovative financial solution with the potential to unlock financing for deeper tier suppliers, where small and medium-sized enterprises (SMEs) are prevalent, by allowing access to finance by leveraging the credit risk of the anchor buyer. DTSCF not only unlocks finance at favorable rates for deeper tiers in a supply chain, but it also promotes an ecosystem of financial stability, risk management, and sustainability throughout the entire supply chain.

BAFT and ADB developed this white paper to provide a shared view of DTSCF, to outline its features as a new technique in financing trade and supply chains, to define what DTSCF is and what it is not, and to offer necessary definitions and legal frameworks to make it a success at scale.

“We’re pleased to have been able to build on the initial work done by ADB on this subject to help identify the key considerations to successful deployment of deep-tier supply chain finance, which can be a useful tool to help address the persistent trade finance gap,” said Tod Burwell, president and CEO, BAFT.

“Deep-tier supply chain finance is an exciting innovation that has the potential to drive greater resilience in supply chains and unlock the potential for SME-led economic growth, job creation, and prosperity,” said Steven Beck, ADB’s Head of Trade and Supply Chain Finance Program. “The publication details the next steps required to overcome the challenges in scaling this innovation and we’re excited to tackle these with our public and private sector partners.”

Click here to read BAFT’s Deep-Tier Supply Chain Finance. The white paper is also available within BAFT’s Library of Documents under the Guidance and Industry Practices section.

About BAFT

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

BAFT Media Contact:
Blair Bernstein
Senior Director, Public Relations
[email protected]
+1 (202) 663-5468

Follow Us: @BAFT

BAFT Announces New Women in Transaction Banking Initiative 2024 Global Annual Meeting

BAFT has launched its Women in Transaction Banking (WTB) initiative during its 2024 Global Annual Meeting in Orlando.

Via Trade Finance Global by Brian Canup

BAFT, the leading global financial services association for international transaction banking, has launched its Women in Transaction Banking (WTB) initiative during its 2024 Global Annual Meeting in Orlando.

The BAFT WTB initiative was established to promote gender diversity and inclusion within the transaction banking industry. The program, which aims to foster an environment where women can thrive and excel, will provide a platform for networking, mentorship, and professional development opportunities tailored specifically for women in transaction banking.

“At BAFT, we recognize the importance of gender diversity in driving innovation and success in the transaction banking sector,” said Deepa Sinha, vice president, payments & financial crimes, BAFT. “The launch of the Women in Transaction Banking initiative reaffirms our dedication to advancing the careers of women professionals in our industry and creating a more inclusive and equitable future.”

The program’s unveiling was held during the BAFT Global Annual Meeting, as it brings together industry leaders, policymakers, and stakeholders from around the world to discuss the latest trends, challenges, and opportunities in transaction banking.

As part of the WTB initiative, BAFT will organize a series of networking events, webinars, and a robust mentorship program designed to connect women in transaction banking and enhance their industry-relevant skills. Additionally, WTB will collaborate with member institutions and industry partners to drive meaningful change and promote gender equality throughout the transaction banking ecosystem.

“We are excited to launch the Women in Transaction Banking initiative and look forward to working closely with our members and partners to advance the representation and leadership of women in our industry,” Sinha said.

BAFT Launches Initiative to Bridge Gender Gap in Transaction Banking

Via Global Trade Review by Shannon Manders

BAFT (Bankers Association for Finance and Trade) has launched a Women in Transaction Banking initiative to promote gender diversity and inclusion within the industry.

BAFT’s Women in Transaction Banking (WTB) programme will provide networking, mentorship and professional development opportunities for women professionals to enable them to thrive in transaction banking roles, the association says.

“By addressing the gender gap in the industry, we aim to foster innovation, drive profitability, attract more talent and create a more inclusive environment within transaction banking,” it says.

Deepa Sinha, BAFT’s vice-president of payments and financial crimes, will oversee the initiative as secretariat. Under her guidance, a governance council is being formed, currently consisting of 18 women from around the world who will drive the programme’s activities.

Sinha tells GTR that the council will gather in the coming weeks to appoint leadership positions and establish the framework for the mentorship programme as its primary focus.

The initiative was formally launched last week at a WTB breakfast meeting during BAFT’s Global Annual Meeting in Orlando, Florida. Meeting attendees engaged in informal group discussions covering topics such as unequal pay, microaggressions and biases, and strategies for career advancement.

“We see women enter trade and cross-border payments, and as some rise through the ranks, others fall away. There’s a lot of attrition. Often, the reasons for that are because they don’t have a clear career path, they may face obstacles, and they may not have a mentor or someone who can give them the guidance that they need. They may not find assistance within their organisations or have the required skill set,” said Sinha, speaking on the sidelines of the event. “I want WTB to fill that gap.”

WTB is open to women at all levels of their careers, from all of BAFT’s member organisations.

“This initiative is intended to be driven by our members, mirroring the structure of our other councils and committees,” said Sinha. “These bodies exist for the benefit of our members and are shaped by their input.”

Commenting on the initiative, Caryn Pace Messenger, managing director, global trade and supply chain finance at Bank of America and member of the WTB council, tells GTR: “BAFT continues to impress with the launch of the WTB, which will strengthen our community by providing women with opportunities to expand their industry connections and amplify our collective voice through the global Baft network. This is really exciting.”

BAFT Announces New Vice President of International Policy

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, has named Andrew Price as its new vice president of international policy. Price will lead the association’s international policy advocacy efforts and relevant councils and committees. 

“We are delighted to welcome Andrew to the BAFT team,” said Tod Burwell, President & CEO of BAFT. “His legal background coupled with his international advocacy experience will serve him well in this role and we look forward to working alongside him.”

Prior to joining BAFT, Price was senior vice president of advocacy and general counsel for the World Council of Credit Unions. In that role, he led the group’s global advocacy before various international standard setting bodies, including the Basel Committee, Financial Stability Board, Financial Action Task Force, and others. He simultaneously served as an adjunct professor for Florida State University’s College of Law. Price also held positions with the Credit Union National Association, First Commerce Credit Union in Tallahassee, Fla. and the state’s Office of Financial Regulation.

Price earned his bachelor’s degree from the University of Central Florida and his J.D. from Nova Southeastern University.

About BAFT

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

BAFT Media Contact:
Blair Bernstein
Senior Director, Public Relations
[email protected]
+1 (202) 663-5468

Follow Us: @BAFT

BAFT Launches New Women in Transaction Banking Initiative at 2024 Global Annual Meeting

WASHINGTON —BAFT, the leading global financial services association for international transaction banking, today launched its groundbreaking Women in Transaction Banking (WTB) initiative during its 2024 Global Annual Meeting in Orlando.

The BAFT WTB initiative was established to promote gender diversity and inclusion within the transaction banking industry. The program, which aims to foster an environment where women can thrive and excel, will provide a platform for networking, mentorship, and professional development opportunities tailored specifically for women in transaction banking.

“At BAFT, we recognize the importance of gender diversity in driving innovation and success in the transaction banking sector,” said Deepa Sinha, vice president, payments & financial crimes, BAFT. “The launch of the Women in Transaction Banking initiative reaffirms our dedication to advancing the careers of women professionals in our industry and creating a more inclusive and equitable future.”

The program’s unveiling was held during the BAFT Global Annual Meeting, as it brings together industry leaders, policymakers, and stakeholders from around the world to discuss the latest trends, challenges, and opportunities in transaction banking.

As part of the WTB initiative, BAFT will organize a series of networking events, webinars, and a robust mentorship program designed to connect women in transaction banking and enhance their industry-relevant skills. Additionally, WTB will collaborate with member institutions and industry partners to drive meaningful change and promote gender equality throughout the transaction banking ecosystem.

“We are excited to launch the Women in Transaction Banking initiative and look forward to working closely with our members and partners to advance the representation and leadership of women in our industry,” Sinha said.

For more information about the Women in Transaction Banking initiative and other BAFT programs and initiatives, please visit the BAFT website at www.baft.org.

About BAFT

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

BAFT Media Contact:
Blair Bernstein
Senior Director, Public Relations
[email protected]
+1 (202) 663-5468

Follow Us: @BAFT