If there is a potential opportunity that can pull the world economy out of its flat and moribund growth state as seen in the past few years, then such a potential lies in the Asian economies that are scratching below the surface of a trading boom. China showed to the world and especially Asian countries, that a nation can come out of its economic rut by focusing on an export oriented growth and development. Therefore, it goes without being said that international trade and its growth will have a remarkable impact on the growth of Asian economies.
However, this dormant potential may fizzle out if trade financing options are not made easily available to businesses in these economies. Writing about the importance of trade financing in a ‘The Business Times‘ article, the director-general of independent evaluation at the Asian Development Bank (ADB), Mr. Vinod Thomas, recently outlined the importance of availability of trade finance to poorer Asian economies. The case for a more liberal trade financing regime is made stronger when one considers the exponential growth in Asian economies.
The total export-import trade value for Asian economies almost quadrupled in value in just 15 years. The intra-Asia trade also has been growing at a brisk space. Yet, all of this has happened by relying on traditional financial methods such as ‘letters of credit’ that are guaranteed by banks for payments. If the fullest potential of Asian trade is to be realized, Mr. Thomas pointed out that the Oriental region will need an estimated USD 425 billion as trade finance.
Mr. Thomas also outlined the important role of the ADB in fostering a climate of open trade financing regime that facilitates crucial financing options to businesses, especially those which are Small and Medium Sized Enterprises (SMEs). Better trade financing options will not only bring these SMEs into an inclusive global trading paradigm, but will also ensure poverty alleviation in many countries and a more egalitarian society.
This is so because SMEs constitute more than 60% of the total business constituents in most Asian economies. SMEs also, as a whole, employ a far greater number of people than bigger businesses, in most of these poorer Asian countries. Additionally, ADB has also been exhorted to work towards the promotion and awareness of trade financing options as the intake is very low for many of these SMEs. SMEs must be the ADB’s agenda in the overall development of Asian economy as they form the backbone of most countries.
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