Global Trade Finance Gap Enlarged To $1.7 Trillion In 2020
According to the latest Trade Finance Gaps, Growth, and Jobs Survey, announced by the Asian Development Bank (ADB) today on Oct. 14, 2021, global trade finance witnessed a record-breaking gap of $1.7 trillion in 2020, a 15% increase from two years earlier. All thanks to the sudden outbreak of Covid-19 through trade & supply chains that brought economic & financial chaos to the global traders and disrupted international trade & transactions. Read the ICC guidelines to address Covid-19 disruptions in the trade finance market.
As per the survey, the small and medium-sized enterprises (SEMs) were tremendously affected during the pandemic as trade finance evaporated with the spread of the Covid-19 disease, accounting for almost 40% of dismissed trade finance requests. Particularly, SMEs owned by women found it difficult to get funding, with 70% of their applications completely or partially rejected. The gap which is showing the difference between requests and approvals for funding to aid imports and exports was $1.5 trillion in 2018.
According to ADB Trade and Supply Chain Finance Head Steven Beck, “Trade plays a crucial role in recovering the global economy from the pandemic, but the funding shortfall makes it complex to generate employment and development. The difficulties of trading businesses might be even more outrageous than our survey reports, as many of them were discouraged by the economic vulnerability from even applying for trade finance services. The increased prices of food and energy will worsen the gap situation, eating into nation and counterparty funding limits in place to help trade.”
The survey is the world’s leading indicator of trade finance well-being. The seventh survey incorporates 79 banks, and 469 organizations from all regions of the world.
Another prime reason that caused enlarging the trade finance gap is more fragile balance sheets and macroeconomic vulnerability. Regulations were introduced to control money laundering & tax evasion but the fraud proceeded to accidentally threaten trade finance needs. Various measures have been taken by banks to aid SMEs, with 27% reporting that they offered debt moratoriums and 23% expanding capital availability levels. More than 40% of the companies anticipated their revenues should get back to the pre-pandemic levels in 2022.
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The survey also highlights that inviting, holding, and promoting more women in the finance sector could help narrow the gap for women-owned firms. Moreover, the digitization of the trade finance industry will also help through new efficiencies, but considerably more public sector support and global standards will be required to understand this potential.
Mr. Beck added, “The full digitization of trade is essential to close the gap through prominent coordination with the private sectors as well as international agreement on common principles, practices, and legislation.”
Sponsored by ADB's AAA credit rating, the Trade & Supply Chain Finance Program (TSCFP) facilitates loans and guarantees to more than 200 partner banks to boost trade, generating import & export opportunities for businesses across Asia and the Pacific. In 2020, the transaction numbers by TSCFP increased by 50% 2020 to narrow the enlarged market gaps left by a retrenching private sector. In 2021, TSCFP will aid more than 7000 transactions estimated at over $6 billion in markets where the private sector has more difficulties in operating.
ADB is focused on accomplishing a prosperous, comprehensive, versatile, and sustainable Asia and the Pacific while supporting its endeavors to destroy outrageous poverty. It was established in 1966 and owned by 68 members- 49 from the region.