Moves afoot to level trade finance playing fields

The World Trade Organisation (WTO) along with six additional international organisations yesterday pledged to deliver greater financial inclusion in trade during a special session of the International Monetary Fund-World Bank’s Annual Meetings in Bali.

According to estimates by the Asian Development Bank, the global gap in trade finance currently sits at around US$1.5 trillion – representing a significant barrier to trade and affecting developing countries and small businesses the most. Today, 60% of trade finance requests by small and micro and medium-sized enterprises are rejected.

“Despite the importance of trade finance, a number of problems have emerged since the financial crisis,” said WTO director-general, Roberto Azevêdo. “Supply and demand have become unbalanced, and perceived regulatory risk combined with the low capacity of the financial sector in some countries has resulted in big gaps in provision.”

He noted that this was resulting in loss of opportunities for growth and development which demanded urgent action.

However, Azevêdo pointed out that significant progress had been made on this issue in recent years, including the enhancement of the trade finance programmes of key institutions which were expected to support over US$35 billion of trade this year – an increase of more than 50% over two years.

He said progress was also being made in addressing the knowledge gaps in local financial institutions and increasing dialogue with regulators to ensure there were no unintended consequences for trade finance which was a very low risk form of lending.

“We need to make global trade more inclusive, but trade inclusion needs financial inclusion so we need to continue developing concrete ideas and solutions that make a real difference,” added Azevêdo. “Working with a range of partners – including the private sector – can help provide momentum to this work.”

The six organisations involved in the discussions include the International Finance Corporation, International Islamic Trade Finance Corporation, the IMF, Africa Export-Import Bank, the European Bank for Reconstruction and Development and the Financial Stability Board.

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