May 25, 2024

One of the first things we learn and teach in economics classes is that resources are scarce and that these resources should be distributed in the most effective way. Do we always comply with this in real life? I’m not so sure.

We’re talking about supply chains that are the lifeblood of every economy. These supply chains are largely composed of SMEs. SMEs in every economy; Whether developed or developing, we know that they constitute 80%-90% of economic added value and employment. Supply chains are like a complex or chaotic vascular system. A blockage anywhere can cause a chain collapse. Instead of opening the occluded area with a stent, we need to seek a cure for that occlusion not to occur at all. Because if we delay in stenting, we can cause permanent damage. The bankruptcy of three or five SMEs in the supply chain may cause permanent damage that is difficult to repair in that sector and even in that economy. As we all know, it takes decades for an efficient business to be implemented and made to contribute.

In times of economic distress, many businesses lose their immunity to external problems and become weak. Just as individuals with weak immunity are at high risk of getting sick and dying in the pandemic environment. SMEs generally have chronic diseases anyway, most of them have insufficient investment and working capital, they definitely need support (medicine).

When trade financing, in other words, supply chain financing, is done with rational methods, SMEs in that economy will be stronger and will make a greater contribution to the development of economic added value and employment.

By rational methods we mean:

First, we need to model the chaotic nature of supply chains using mathematical methods. Starting this work with sectors, we can map the flow of goods and money within each sector, and identify the weak links in the chain. We can then create a multi-level supply chain universe by mapping inter-industry relationships and flows. For this, advanced mathematical methods and computing capacity are now available. The data is also available in databases of public and private institutions.

After creating the supply chain universe, we will see which sectors we will support first and which links of the chain that make up this sector need to be supported (medicine) first. We will deliver our credits, which we define as scarce resources, to their targets with point shots. In this way, we will strengthen the links of the chains before economic problems occur. When economic difficulties arise, we will know in advance which chains and links will be our priority.

What we observe today is that SME loans are randomly distributed. We need to make sure that the loans taken by SMEs as medicines are actually used in their business. For years, one of the most important problems that banking has faced in SME loan management has been the inability to monitor whether the loans are used in accordance with their real purpose or not. For this reason, banks have often preferred to stay away from SMEs.

In today’s environment where not only B2C but also B2B commerce is digitized, we can observe the payment behavior of SMEs when they conduct their trade on a digital portal. I explained in a previous article that this constitutes their “Reputation Guarantees”. We can see from whom the SME, which trades on a B2B digital portal, buys, sells to, money flows, how and from where it creates resources. In this way, instead of putting this resource into his hands when he needs a resource, we both satisfy his need for resources (working capital) and prevent the resource from leaving the supply chain, by giving it to other businesses (suppliers) with whom it trades.

SMEs should be encouraged to trade on B2B Supply Chain Portals such as Octet, by lenders, primarily banks; for example, providing loans with more favorable terms to SMEs who do their business on the portal. This will not only benefit the lender or the bank, but also the economy as a whole, for the reasons I listed above.

 

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