Technology is needed to reduce the trade finance gap
Trade finance is generally seen as sound finance, underwritten by long-standing practices and procedures. The World Trade Organization (“WTO”) estimates that some 80 to 90 per cent of world trade relies on trade finance. These estimates are made with the acknowledgement of the absence of comprehensive and reliable data on trade finance flows.
World merchandise trade as published by the WTO was US$19.05 trillion in 2019. We are told that the trade numbers contracted by 5.3% in 2020, generally ascribed to the effects of the COVID-19 pandemic, but that they are expected to grow 8% in 2021 and 4% in 2022. With the projected growth and a base of some US$18 trillion to grow from, trade finance represents a very sizeable addressable market for financiers.
Having said this, there is a reported shortfall in trade finance availability – known as the “trade finance gap” – of some US$ 1.5 trillion, estimated by the Asian Development Bank (“ADB”) in its latest (2019) published survey. The ADB first published the trade finance gap in 2013; therein, the “trade finance gap” was defined as a financial institution’s inability to meet the demand for any form of trade finance, and represents the amount of trade finance that is not available to support imports and exports resulting in less trade than would be if there was no gap.