World Trade Board Endeavors To Increase SMEs Access To Trade And Finance
Recently, the World Trade Board, pioneered by Finastra, has introduced the “Financial inclusion in Trade” strategy for MSMEs and invites industry feedback and collaboration. The framework was developed in association with significant industry bodies and global stakeholders, distinguishing five vital areas of trade finance where coordinated action can make a noticeable impact. Essentially, this roadmap is focused on speeding up the pace of progress by facilitating a comprehensive framework for public and private sector partnerships.
There is no denying that MSMEs make up around 90% of business worldwide, and 50% of employment, yet only represented for just 23% of applications for trade finance in 2020. Apart from their low representation, these smaller firms made up 40% of dismissed trade finance applications. This gap between demand for and supply of trade financing, known as the Trade Finance Gap, is increasing rapidly - from an estimated $1.5 trillion in 2018 to $2 trillion in 2022 and reflects no signs of slowing.
Michael Vrontamitis, Deputy Chair of the World Trade Board stated, “Due to challenges accessing finance in trade, MSMEs are enormously under-addressed in global trade. Several strategies to accelerate financial inclusion have been initiated, but to speed up the progress we want to tackle the knowledge and technology accessible to us into collective action. Our framework adjusts diverse stakeholders towards a common vision, with clear lines of liabilities in a result-oriented approach. We currently welcome the industry to give feedback & other inputs to further update the Roadmap, then join us on execution.”
Remarking on the launched framework, Pascal Lamy, Coordinator of the Jacques Delors Think Tanks, President of the Paris Peace Forum, and Strategic Advisor to the World Trade Board states, “With regards to the gaps in the provision of trade finance, no commercial bank or multilateral institution can resolve these challenges on their own. They need to track down better approaches for cooperating with one another, with governments, and with other creative associations to convey their expertise.” To this end, the Financial Inclusion in Trade Roadmap recommends actions in five key areas:
Pillar 1: Digital Infrastructure
Digital identities - Speeding up the incorporation of digital identities such as the Legal Entity Identifier (LEI) and Decentralized Identifiers, through assigned usage in the financial services sector.
Pillar 2: Legal/Regulatory Infrastructure
Support the acquisition of or adjustment of legal arrangements with, UNIDROIT's Factoring Model Law (FML), expected to be published in Q3 2023, and its wider execution and provide adoption of proficient administrative systems.
Pillar 3: Data Infrastructure
Get access to trade receivables - related data focuses to update traditional credit-decisioning strategies.
Pillar 4: Technical Assistance
Support specialized learning among financial institutions and MSMEs on matters related to legal, digital, and data infrastructure.
Pillar 5: New Funding Sources
Build an infrastructure to encourage venture in reliable MSME trade finance assets.
Simon Paris, Chair of the World Trade Board and CEO of Finastra explained, “MSMEs are vital to accelerating the growth of our national economies and communities. Together as an industry, I am certain we have the knowledge, skills, and innovations to address the diverse complexities in a planned, collaborative way and assist in redefining finance for good. This newly launched roadmap is a crucial step towards this goal and we anticipate working with the industry further to fasten our advancements towards it.”
Before the roadmap is made final, The World Trade Board requests remarks and feedback from all stakeholders to help ensure the strategy can be executed as widely as possible. Financial Inclusion in Trade Roadmap can be found on the World Trade Symposium website.
The Financial Inclusion in Trade Roadmap has been founded in association with international organizations with expertise across industries. Vital contributors include the International Chamber of Commerce UK (ICC UK), the International Finance Corporation (IFC), BAFT (Bankers Association for Finance and Trade), the International Trade and Forfaiting Association (ITFA), and FCI.