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Trade Finance Gap Blows Out to Record High of US$1.7T - ADB

Trade Finance Gap Blows Out to Record High of US$1.7T - ADB

(18 October 2021 – Global) The Asia Development Bank (ADB) reports that the global trade finance gap has hit a fresh record high as more importers and exporters, especially in the small business (SMB) segment, are unable to access vital working capital support they desperately need to expand international trade volumes.

The gap will inhibit economic growth and job creation, making economic recovery from the pandemic more challenging. The ADB estimates that the gap has hit small companies and those owned by women the hardest, identifies why the gap exists, and suggests what needs to be done to close the gap.

SMBs were shown to be the hardest hit through the COVID-19 pandemic since Q1 2020, representing four out of ten rejected trade finance applications (40 percent). Trade finance providers are not sitting on their hands however, enacting extra initiatives to extend traditional trade financing such as Open Account financing, Letters of Credit (LCs) and Documentary Bills for Collection (DCs) alongside supply chain finance to SMBs. 27 percent of the 79 banks captured by the research reported to the ADB that they offered debt moratoriums, and 23 percent increased capital availability levels.

ADB also offered funding relief, with its trade and supply chain businesses expanding transaction volumes by 50 percent last year and forecasting over 7,000 transactions valued at over US$6 billion in 2021.

“Trade is critical for the global economy to recover from the pandemic, but the financing shortfall makes it much harder to create jobs and growth” commented ADB Head of Trade and Supply Chain Finance, Steven Beck when interviewed by Trade Finance Global.

“Taking a closer look at the numbers, Beck said there was a 9% drop in trade finance applications in 2020 – which was broadly in line with the drop in trade last year – so the $200 billion increase in relation to the drop in applications is a low-ball figure. Moreover, the data for this study was accumulated nine months ago, before the huge spike in energy and food prices” Mr Beck stated.

“This will exacerbate the gap significantly, as each deal will use up more of what country and counterparty limits exist to support trade, reducing capacity to support other deals. Importantly, energy and food consume a lot of the poor’s income, and this has to be a major concern” Mr Beck added.

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