TRADE FINANCE: BRIDGING THE GAP ACROSS BORDERS
The demand for short-term financing for trade transactions exceeds supply, but some development actors are stepping up to provide what's needed.
T
rade finance is a lifeline for small- and medium-sized enterprises
(SMEs) in emerging economies – and essential to global trade. In emerging markets and developing economies particularly, international trade finance enables the transfer of goods across borders by providing coverage for the risks associated with trade, such as transporting over distances, differences between banking and credit systems, and economic and political uncertainties. It follows that access to short-term financing for trade finance is one of the biggest obstacles to international trade. Exporters want to be paid when they
ship goods; whereas importers want to pay only when they receive goods. In more advanced economies, these transactions are not so challenging. Financial institutions back both the shippers and receivers. For a small- scale agricultural producer in Burkina Faso, however, it may be difficult to prove creditworthiness, show collateral or provide documentation. In such instances, accessing trade finance from a local bank will likely prove difficult. According to African Development Bank’s 'Trade Finance in Africa' report, the poorest countries are hit hardest by this lack of access to finance.
ABOUT
THE TRADE FINANCING
GAP* Prior to COVID-19, the trade finance gap was already large and expanding. In 2018, the global trade finance gap reached an estimated
US$1.5 trillion
• The developing Asia trade finance gap is estimated at US$700 billion.
* IFC: Why Trade Finance matters – Especially Now, November 2020
IMAGE: galyna_p –
stock.adobe.com 19 .
The gap is most pronounced in emerging market and developing economies. • As of 2019, the trade finance gap in Africa was estimated at US$82 billion per annum.
PHOTO: dennizn/
Shutterstock.com
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