Mystique around SCF has to go

Michiel Steeman

date: March 31, 2021

Michiel Steeman writes about the enigma surrounding which types of finance structures should be characterised as part of Supply Chain Finance and puts out a call to action towards SCF providers for a code of conduct and common framework for disclosure in order to bring clarity to the field.

Was Greensill misusing the SCF label? Just because someone calls it supply chain finance does not make it so. But then what is supply chain finance and what is not?

Over these past days we have collected many comments from users and providers alike: there should be more clarity on what should be considered supply chain finance and what not. Some even suggest that the SCF Community should have taken a firmer stance on this in the past. Maybe we could have or should have. It does however raise the question who should determine what SCF is all about.

Clearly, one of the challenges is that the majority of the market synonymizes supply chain finance with reversed factoring without understanding that it can be much more than that. These past years we have seen several handbooks on SCF written under supervision of organizations like the ICC and most recently the IFC. These initiatives have tried to define the various financing structures that would be considered supply chain finance. Useful for sure.

But it would have been more useful if we had materialized our SCF market study based on real data from the SCF providers. We tried two years ago. The idea being that collecting data on our predefined structures would provide insight into the actual size and characteristics of the SCF market. Only a few SCF providers did sign up. Unfortunately, nobody shared their data.

Why you may ask? Well, maybe the market was not looking for transparency. SCF providers feel the market pressure to exaggerate their funding, volume and reach. And quite interestingly the large buyers on the other hand prefer to downplay the usage of SCF solutions. Sometimes with disastrous consequences. Take Abengoa and Carillion as an example. It is for a reason that the big four wrote to the IASB for guidance on the treatment of these programs in annual reports. It is in this opaque environment that Greensill aggressively build their portfolio.

Clearly, that mystique around SCF needs to disappear. How? We propose three actions. Let us work together to (1) create proper market statistics, (2) launch a code of conduct and (3) design a common framework for disclosure in the annual reports of buyers.

This is the second article in a short series based on an ongoing market survey, interviews and the many news articles. Share your views/experiences as well via this link.

Michiel Steeman

Professorship at Windesheim University of Applied Sciences

Michiel Steeman was selected in 2013 as the inaugural holder of the Supply Chain Finance Professorship at the Windesheim University of Applied Sciences in The Netherlands. He is also the founder and chairman of the Supply Chain Finance Community that has already brought together over 30 leading business schools from more than 20 countries around the world who actively collaborate with companies, banks and governments in the developing field of Supply Chain Finance.