The availability of trade finance is essential for a healthy trading system as up to 80 per cent of trade is financed by credit or credit insurance. But trade finance is not always available. A lack of trade finance is a significant barrier to trade. SMEs have particular challenges in accessing affordable financing. Globally, over half of trade finance requests by SMEs are rejected, against just 7 per cent for multinational companies.
SMEs in developing countries face the greatest challenges in accessing trade finance and there are some very large gaps in provision. The estimated value of unmet demand for trade finance in Africa is US$ 120 billion (one-third of the continent’s trade finance market) and US$ 700 billion in developing Asia. Bridging these gaps would unlock the trading potential of many thousands of individuals and small businesses around the world.
“Without adequate trade finance, opportunities for growth and development are missed and companies are deprived of the fuel they need to trade and expand,” said DG Azevêdo. “By working together with our partners, I believe we can further close the gaps in provision and ensure that trade finance is no longer a barrier to trade, but a springboard to growth and development.”
Various steps are already being taken to tackle this issue on a number of fronts: encouraging global financial institutions to remain engaged; encouraging regulators to emphasise the trade and development dimension; increasing the capacity of local financial institutions; and providing support measures to increase the availability of trade finance via multilateral development banks.
The report highlights a number of further steps which could be taken, including:
- enhancing existing trade finance facilitation programmes to reduce the financing gap by US$ 50 billion
- reducing the knowledge gap in local banking sectors for handling trade finance instruments by training at least 5,000 professionals over the next five years
- maintaining an open dialogue with trade finance regulators to ensure that trade and development considerations are fully reflected in the implementation of regulations
- improving monitoring of trade finance provision to identify and respond to gaps, particularly relating to any future crises.
The full report “Trade Finance and SMEs” is available for download here.
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