USD 1.5 trillion global trade finance gap remains a significant issue

The USD 1.5 trillion global trade finance gap is affecting development and investment flows and financial inclusion, and businesses appear to be facing an increasingly uphill struggle in accessing the resources and support needed to fulfill their trade needs.

The report Overcoming the Trade Finance Gap: Root Causes and Remedies conducted between April 2018 and January 2019, found that trade finance rejection rates accelerated in more than one-third or (33%) of institutions surveyed in the past year. Additionally, 71% of respondents cited compliance constraints and the inability for applicants to provide quality KYC as a key factor influencing the volume of rejection rates. As a result, banks have had to be more selective in who they do business with and subsequently move away from geographies and sectors that appear to hold greater risk for less reward.

Moreover, participants identified technology and regulatory revision as two potential approaches that could help to narrow the trade finance gap. Specifically, centralized KYC databases could provide a technology-based solution, according to 61% of respondents, while regulatory revision would most benefit from greater collaboration between banks and regulators, according to 55% of respondents. Additionally, risk sharing partnerships with correspondent banks is seen as the most effective way of encouraging additional financing capability, while educating local banks and acting as advocates for trade finance are also key roles for correspondent banks in helping to alleviate the gap.