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Trade Finance

Trade finance plays a key role in helping developing countries participate in global trade. Easing the supply of credit in regions where trade potential is the greatest could have a big impact in helping small businesses grow and in supporting the development of the poorest countries. The availability of finance is also essential for a healthy trading system.  Experts estimate that, up to 80 per cent of global trade is supported by some sort of financing or credit insurance (JaeBin Ahn, 2011 "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund). However, there are significant gaps in provision and therefore many companies cannot access the financial tools they need. 
Following the 2008-09 economic crisis, small and medium-sized enterprises (SMEs) have found it increasingly difficult to access this vital form of credit. The lack of adequate trade finance is particularly acute in Africa and developing Asia. Unmet global demand for trade finance is estimated by the Asian Development Bank to be as high as $1.6 trillion in 2015 (Asian Development Bank, 2016, Trade finance gaps, growth and jobs survey"). In Asian developing countries alone, the estimated shortage might have been close to $700 billion. In a study by the African Development Bank (AfDB, 2014, "Trade Finance in Africa", 3 December 2014), the unmet demand for trade finance was estimated to be some $110-120 billion, a third of the total market for trade finance on the continent. In 2016 WTO issued a publication that takes a detailed look at this issue, emphasizes the importance of multilateral agencies working together in response and provides a set of recommendations for addressing the gap in trade finance provision.  Surveys from the World Economic Forum, the International Chamber of Commerce cited in this publication indicate that trade finance is one of the top three obstacles for SMEs, particularly in developing countries, to export. In order to alleviate some of the gaps in the provision of trade finance the following proposals are made in the WTO publication:
Reduce limitations in existing multilateral programmes
Increase programme size where possible
Set a realistic yet ambitious objective for total trade coverage
Increase capacity building support in the local banking sector
Maintain an open dialogue with trade finance regulators
Improve the capacity of the international community to read markets and predict problems