Banks are missing out on a major opportunity in trade finance
As the nature of trade evolves, how it is financed needs to also change. Trade finance is about securing an asset, such as a contract for payment or an invoice, and lending against that asset. Lenders have a multitude of products that help exporters get paid for goods but ensuring that an asset has been pledged to only one lender remains a key industry challenge. The integrity of the trade finance landscape is vital for the flow of trade finance, especially since 80% to 90% of the world trade market relies on trade finance.
As crucial providers of trade finance, banks need to take action toward reducing the trade finance gap. Pre-pandemic, the Asian Development Bank estimated the trade finance gap at an astounding $1.5 trillion – recently figures show this number to have more than doubled due to COVID. Research from the International Chamber of Commerce (ICC) estimates that as much as $5 trillion in trade financing is needed for the global trade flow to return to pre-pandemic levels. Considering the potential for trade growth, the onus is on banks to step up their digitization efforts, accessibility, and operating models to de-risk trade finance transactions.
Accessibility for organizations of all sizes
While the gap in trade finance is global, it is not evenly distributed. Small to mid-sized suppliers often bear the brunt, especially those based in developing markets where export-oriented goods are the engine of economic growth and prosperity. These suppliers cannot get access to credit to fund new deals and many are waiting weeks, sometimes months, to get paid for the goods or services they have already delivered.