Global Trade Finance Gap Reaches US$1.6 Trillion, SMEs Hardest Hit

SINGAPORE, Sept 7 (Bernama) -- The inability of financial institutions to provide US$1.6 trillion (US$1 = RM4.05) in support to buyers and sellers of goods across countries, resulted in forgone growth and job creation in 2015. This is according to the Asian Development Bank (ADB) Brief released Wednesday. Developing Asia's share of the global trade finance gap was US$692 billion, including India and China. In its new study, 2016 Trade Finance Gaps, Growth, and Jobs Survey, the ADB quantifies market gaps for trade finance and explores their impact on growth and jobs, through a survey of over 337 banks in 114 countries and 791 firms in 96 countries. The annual survey is now in its fourth year. "The growth of the trade finance gap in 2015 continued to be a drag on trade, and small-and medium-sized enterprises (SMEs) were the most affected. said the Head of ADB's Trade Finance Program, Steven Beck. "The survey showed that both globally and nationally, regulators and policymakers should increase support for trade finance through smarter banking regulations, more transparent and comprehensive credit ratings systems, and capacity building for local banks," said the Head of ADB's Trade Finance Program, Steven Beck. He noted that ADB's Trade Finance Program stood ready to assist member countries and its client banks in all of these areas. The ADB report highlighted that trade finance gaps persist in part, due to the cost and complexity of compliance with banking regulations, with 90 per cent of surveyed banks citing anti-money laundering and know-your-client requirements, as impediments to their ability to expand trade finance, especially for small businesses. Basel III banking regulations, which set liquidity requirements for bank finance, are also cited by 77 per cent of respondents as a major barrier to finance new trade. The report noted that SMEs face the greatest obstacles in accessing affordable trade financing. Globally, 57 per cent of trade finance requests by SMEs are rejected, against just 10 per cent for multinational companies. High rejection rates led many firms to turn to inefficient informal financing. The report also said that Financial technology, or Fintech, can help bridge the financing gap for businesses left out of trade finance, according to the Brief. But awareness of digital finance by small businesses remains low, with 70 per cent of responding companies indicating they are unfamiliar with these tools. Among firms that were familiar with digital finance, peer-to-peer lending had the strongest uptake rates in developing countries. Since 2009, ADB's Trade Finance Program has supported more than 8,200 SMEs across the region, with about 11,800 transactions valued at over US$23.6 billion, in sectors ranging from commodities and capital goods, to medical supplies and consumer goods. The ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, the ADB in December 2016 will mark 50 years of development partnership in Asia. Owned by 67 members — 48 from the region - the ADB's assistance totaled US$27.2 billion, including co-financing of US$10.7 billion, last year. --BERNAMA