Extensive 80-90% Reliance Of The Global Trade, Trade On Finance, Credit, And Guarantees
Finance, credit and guarantees are the drivers of the global trade market, with research depicting 80-90% reliance on these factors. This means exporters and importers from developed countries benefit from the low interest offered by international banking institutions. On the other hand, businesses from less developed countries have to bear the burden of high-interest rates, which is very well reflected in their trade costs.
This is worth discussing because factoring and lending in the trade finance market is generally short term with a non-uniform coverage of trade finance.
Further, the rapid advancement and technology adoption have helped drive structural alterations in the global trading mechanism. Conventional closed systems are now enhancing their capabilities and offerings, all thanks to the growing application of open APIs.
In addition, 2019 was an altogether insatiable environment both in terms of geopolitics and macro economy. This is primarily accredited to Brexit and, of course, the trade war between China and the US, which has taken an extensive toll on the market.
Estimates suggest exporters lost a staggering revenue amounting to 420 billion USD. The pandemic followed this in 2020, which has had a deep impact on the way businesses are carried out around the globe.
Some Notable Trends In The Market
The adoption of technology and growing significance of DLT in the Trade Finance market
Like any other market, even the trade finance market requires technology to survive and sustain the business. As per the Asian Development Bank calculations, the gap in global trade finance amounts to $1.5 trillion, which also equals 10% of merchandise trade volume. However, this amount is predicted to reach upto $2.4 trillion by 2025.
Broader adoption of DLT can reduce this gap and bring it down to $1 trillion. Therefore, financial institutions must hasten their technology adoption and drive better efficiency to address gaps.
Restricted access to the market
Most businesses from developing countries find it almost impossible to access the trade finance market. On a global scale, over 50% of trade finance requests are rejected by SMEs, and MNCs reject 7%.