SPEECHES — DG ROBERTO AZEVÊDO
Ladies and gentlemen,
I am pleased to join you today – and to have the chance to update on trade finance issues.
The huge and persistent gaps in trade finance represent a significant barrier to trade. I have heard the issue raised in many different contexts. In fact, it was raised during the Trade Dialogues session with business just yesterday.
According to the World Economic Forum, trade finance represents one of the top three obstacles to exporting for half of the countries in the world.
The Asian Development Bank estimates that the global gap in trade finance is about $1.5 trillion. This represents the amount of trade finance that has been requested by importers and exporters, but rejected. In many developing countries, the alternatives to bank financing are scarce, so when rejected by banks, the transaction is abandoned.
Let me give you an example of why this is so important.
In Burkina Faso, global banks historically provided pre-shipment finance of the cotton crop. This is vital as the crop accounts for a quarter of total exports and 40% of the rural population's income.
However, in recent years banks have withdrawn.
Thankfully the International Finance Corporation and Islamic Trade Finance Corporation stepped in. However, they still require participation by partner banks to support the transactions. They convinced one bank to engage, and together financed 80% of the cotton crop.
If in coming years no bank is willing to participate, the risk is that cotton exports would fall dramatically, and cut off the dominant income source for approximately three million people.
That is why we have to act. If we don’t, then such risks would proliferate – and opportunities would be lost.
WTO members have acknowledged this situation – a situation that affects poorer countries and smaller companies disproportionately. And I know that this issue is being examined by members who are working on MSMEs.
In 2016 we issued a publication on trade finance, which spelled out some of the potential actions that we could take in response. Those actions included:
- supporting multilateral development banks' trade finance facilitation programmes by way of advocacy and mobilization;
- reducing the knowledge gap regarding trade finance products, by encouraging our partners to increase their training programmes;
- opening a dialogue with trade finance regulators; and
- continuing to track and monitor trade finance gaps.
I have been working with a range of partners to push these points forward.
So how are we doing?
We have built a strong coalition around these issues.
I have been in contact with the heads of the regional development banks, the CEO of the IFC Philippe Le Houérou, the Chair of the Financial Stability Board Mark Carney, and many others.
Members have also discussed this issue on a number of occasions, including at the Aid for Trade Global Review last year.
I think that this effort to raise awareness is starting to bear fruit. We have seen a number of important steps taken across the board in recent years.
The report produced by the Expert Group on Trade Finance, which has been distributed to you, provides a comprehensive look at these developments. I want to thank Marc Auboin for his work in putting this report together and supporting our work in this area.
So let me highlight some specific areas where progress has been made – following the action plan we set out in 2016.
The first area is about enhancing existing trade finance facilitation programmes.
We are working with our partners here – and we have seen multilateral development banks stepping in to increase their financing or guarantees in the poorest parts in the world. In 2016, these programmes supported around $22 billion in trade transactions. In 2017, this amount increased to $30 billion. And in 2018, it is estimated that over $35 billion of trade will be supported by these programmes. This would amount to an increase of more than 50% compared to just two years ago.
This is very significant progress.
The Asian Development Bank supported trade transactions from more than 2,800 SMEs last year in countries such as Cambodia, Myanmar and Bangladesh. And they continue to see very strong demand.
We are also seeing banks working more closely together to provide better coverage. In July 2017, the heads of the Islamic Trade Finance Corporation and IFC met at the WTO and signed a memorandum of understanding to pursue joint financing in Africa.
All of this is very positive. However, clearly much more needs to be done.
The second area is about addressing knowledge gaps in local financial institutions.
And here again we have some encouraging news.
Multilateral development banks have boosted their capacity building work on trade finance, in collaboration with the ICC. Together they trained nearly 2,600 people in 2017 – across 85 countries.
This is very impressive. I hope that we can further expand the reach of these programmes by bringing new partners on board.
This is why the third element is so important – and that is increasing dialogue with regulators.
The gaps in trade finance emerged in the aftermath of the financial crisis. The crisis forced global banks to re-evaluate their risk calculus. And this was not only due to exposure and risks of default, it was also very much related to the changes in regulation that followed the crisis.
A renewed regulatory dialogue could help here. It could build capacity in smaller, local banks to respond to the trade finance demand. And it could help to encourage larger banks to return to markets that they withdrew from after the financial crisis.
The heads of the FSB, IFC and I agreed that our organizations should work together to see how we could address some of these aspects. In fact, the FSB has made progress in the past couple of years in updating and clarifying regulatory expectations – notably on anti-money laundering and know-your-customer regulations.
We are also looking at the possibility of joint technical assistance missions, helping to build knowledge on trade finance and on compliance requirements.
All of this is still work in progress.
Finally, the fourth area of action was improving the monitoring of trade finance provision.
The Asian Development Bank's global gap study continues to improve – thanks to the collaboration of an increasing number of institutions.
This includes the WTO and other multilateral institutions, and professional associations such as the ICC, Factor Chain International, the Berne Union of Export Credit Agencies and others.
The last available study benefited from the participation from 515 banks and more than 1,300 companies, of which a large number were SMEs.
We will keep developing these partnerships. So it is important to keep improving our dialogue on these issues – including through meetings like this.
That's where things stand today. I think we can reflect on some very important progress.
And I am confident that some of the processes and discussions that we have initiated can deliver even more positive outcomes in the period ahead.
So we need to continue providing momentum to this work.
And of course you have a central role to play.
You can be advocates of this issue – and I invite you to do precisely that.
Moreover, your feedback, views and information on best practices can help advance these conversations, and find concrete areas where we may be able to make a real difference.
So congratulations on the achievements so far. Let's continue working together to ensure that trade finance remains high on the agenda.