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Quantifying Global Market Gaps for Trade Finance

  • Project Name: 2019 Trade Finance Gaps, Growth, and Jobs Survey
  • Region/Country: Global
  • Sector and Themes: Finance
  • Year: 2019
  • Project Leaders: Steven Beck and Kijin Kim
Quantifying Global Market Gaps for Trade Finance
ADB Trade and Supply Chain Finance Head Steven Beck presented the results of the 2019 Trade Finance Gap, Growth, and Jobs Survey at the GTR Asia 2019 in Singapore.

ADB's trade finance survey is a unique tool helping quantify trade finance market trends and gaps in provision, by region, as well as reasons behind them.

—Marc Auboin, counselor for Trade Finance and Coherence, World Trade Organization

Development challenge

Since 80%–90% of global trade relies on trade finance, any gap in availability of financing is a threat to achieving the SDGs. A trade financing gap has a direct effect on global economic growth and particularly impacts SMEs.

Solution

In 2019, ADB’s ADB’s Private Sector Operations Department, through its Trade and Supply Chain Finance Program, and the Economic Research and Regional Cooperation Department (ERCD) spearheaded a survey to help gauge the size of the trade finance shortfall and its expected impact. Before this study, there was no quantifiable information on market gaps for trade finance. This knowledge product is particularly useful for policy makers and the private sector to understand why the gap exists and identify actions to close it. The 2019 Trade Finance Gaps, Growth, and Jobs Survey found that there was a $1.5 trillion market gap in trade financing. The study found that SME applications have a 45% rejection rate versus 39% for medium-sized and larger firms, and 17% for multinational corporations. Women entrepreneurs face a 44% rejection rate, compared with 38% for male-owned firms. The study also explored the leading causes for the gap, which were AML and know-your-customer regulations. While such regulations are crucial to ensure the global financial system is not used to fund terrorism or launder money, they can inadvertently sever legitimate companies in less developed markets from the financial support they need to grow.

Knowledge products and services delivered

A brief report explained how trade finance is essential in meeting the SDGs. It highlighted the unrealized potential of digital technology to narrow gaps particularly among SMEs, and how women-owned firms access trade finance. It looked at the role of financial technology and digitization in boosting growth and efficiency for women-owned firms.

The TSCFP and ERCD launched efforts directed at closing the gap, including the Anti-Money Laundering and Counter-Terrorism Financing Initiative. They organized seminars and workshops, and wrote blog posts to build capacity in the banking sector and thus reduce the trade gap. It promoted a digitization initiative to use technology that would increase access to trade finance in DMCs. The survey results were also disseminated at the Asia-Pacific Trade Facilitation Forum 2019.

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The launch of the 2019 Trade Finance Gaps, Growth, and Jobs Survey was held at the GTR Asia 2019 in Singapore attended by over 1,000participants. Inthepanelwith ADBS teven Beckwere Marc Auboin, Counsellor, WorldTradeOrganization; Mohanavelu Muthukrishnan, BNY Mellon; and Kaushalya Somasundaram, fintech expert.

Impact and results

The gap study is the first of its kind and has been widely cited by other institutions and publications. It quantifies market gaps and brings them to the attention of regulatory, academic, and policy making bodies, adding a sense of urgency and a call to action. As the trade gap mostly affects emerging markets, TSCFP’s partner banks, SMEs, and, more broadly, ADB’s developing member countries benefit from efforts to address the reasons for these gaps.

Lessons for Replication

This survey led by ADB resulted from collaboration with several private and public partner organizations, which helped circulate the questionnaire through their member banks and firms. Such collaborative efforts are critical in getting quality responses from as many respondents as possible.

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The study estimates a $1.5 trillion market gap, impeding ability to achieve the SDGs. The study recommended specific actions to address the gap. ADB’s TFP does about 4,000 deals valued at over $6 billion every year to close gaps and is the largest mobilizer of cofinance at ADB.

The survey enables us to put dimensions around the challenges and those dimensions allow agencies like ours to promote an appropriate response from the development community. This extends up to the level of the United Nations Secretary General, who has now included access to affordable trade financing as a major SDG priority.

—Ian Sayers, senior adviser, Access to Financing, International Trade Centre, Geneva
Hashtags:
#TradeFinance #Trade #Finance #Tradeflows #PovertyReduction #FinTech #Women
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