Asian Development Bank, Toward Inclusive Access to Trade Finance (2022)
Summary
An Asian Development Bank report, Toward Inclusive Access to Trade Finance: Lessons from the Trade Finance Gaps, Growth, and Jobs Survey, published in August 2022 under Publication Stock No. TCS220354-2. Drawing on ten years of the Asian Development Bank's Trade Finance Gaps, Growth, and Jobs Survey conducted since 2012, the publication examines global trade finance trends, bank and company survey findings, default rates in trade finance instruments from 2008 to 2021, and persistent financing barriers for micro, small and medium-sized enterprises in Asia and the Pacific, including government support as of October 2020. It also evaluates digitalization in trade finance markets, public sector support and international cooperation.
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Toward Inclusive Access
to Trade Finance
Lessons from THE Trade Finance Gaps,
Growth, and Jobs Survey
AUGUST 2022
ASIAN DEVELOPMENT BANK
Toward Inclusive Access
to Trade Finance
Lessons from THE Trade Finance Gaps,
Growth, and Jobs Survey
AUGUST 2022
ASIAN DEVELOPMENT BANK
Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)
© 2022 Asian Development Bank
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Some rights reserved. Published in 2022.
ISBN 978-92-9269-707-5 (print); 978-92-9269-708-2 (electronic); 978-92-9269-709-9 (ebook)
Publication Stock No. TCS220354-2
DOI: http://dx.doi.org/10.22617/TCS220354-2
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Cover design by Mike Cortes.
Contents
Tables, Figures, and Boxes iv
Forewordvi
Acknowledgmentsviii
Highlightsix
I. Introduction 1
Recent Trends in Trade and Trade Finance Gap 1
Importance and Benefits of Trade Finance 4
Knowledge Gap and Motivation for the Trade Finance Survey 5
II. Background 9
Access to Finance for Small Firms 9
Trade and Supply Chain Finance Program 11
Trade Finance Gaps, Growth, and Jobs Survey 13
The Trade Finance Gap 16
III. Major Findings and Insights from the Surveys 19
Bank Survey and Trade Finance Provision 19
Company Survey and Firms’ Access to Finance 22
Digitalization30
Role of Public Sector Support 34
Mitigating Knowledge Gap in Trade Finance 36
IV. Conclusions and Way Forward 37
Appendix: Questionnaires 41
References55
iii
Tables, Figures, and Boxes
Tables
1 Default Rates in Trade Finance Instruments, 2008–2021 5
2 Share of Micro, Small, and Medium-Sized Enterprises in Southeast Asia and South Asia 9
B3.1 Differences in Concepts 17
Figures
1 Growth in Merchandise Trade Volume and Real GDP—World 1
2 Shipping Indexes 2
3 Trend of the Trade Finance Gap 3
4 Structure of Trade Finance by Transaction Type 4
5 Government Support for Micro, Small, and Medium-Sized Enterprises 11
in Asia and the Pacific (as of October 2020)
6 Number of Respondents in the Trade Finance Surveys 13
7 Flow of Survey Development 14
8 Select Perception-Related Questions in the Bank Surveys 15
9 Survey Questions to Estimate the Trade Finance Gap 17
10 Trade Finance Gap 20
11 Banks’ Perception of Trade Finance Shortage 20
12 Top Impediments to Trade Finance Provision 20
13 Trade Finance Proposals and Rejections by Region, 2016 22
14 Share of Rejections, by Firm Size 23
15 Why Firms’ Trade Finance Proposals Are Rejected 25
16 COVID-19 Pandemic Trade Finance Support, Shortage, and Anticipated Defaults 26
17 Behavior of Small and Medium-Sized Enterprises Toward Alternative Financing, 2021 27
18 Survey Questions on Financial Technology and Trade Finance 30
19 Expected Impacts of Digitalization on Banking Business 31
20 Technology-Enabled Solutions in Trade Finance 32
21 Areas of Operations Where Digital Solutions Are Utilized 33
22 Banks’ Major Areas of Concern Regarding Technology, 2021 34
23 Firm’s Perceptions on How Regional and International Organizations Can Help 35
Make Finance Affordable for Small and Medium-Sized Enterprises
24 Three Initiatives to Build an Environment Conducive to Technology Adoption 39
B3.1 Trade Finance Gap Estimates for Micro, Small, and Medium-Sized Enterprises 18
B5.1 Participation by Alternative Asset Managers 28
B5.2 Reasons Banks Work with Alternative Asset Managers 29
B5.3 Reasons Corporates Access Private Credit 29
iv
Tables, Figures, and Boxes v
Boxes
1 Statistics on Trade Finance 6
2 Other Institutions Conducting Trade Finance Surveys 7
3 Estimating the Trade Finance Gap for Micro, Small, and Medium-Sized Enterprises 17
Using Other Data Sources
4 Regulatory Compliance Requirements—Necessary but Costly 21
5 Trade Finance Activity in Private Credit Markets 28
6 International Support for Trade Finance During the COVID-19 Pandemic 35
7 Environmental, Social, and Governance Considerations in Trade Finance 38
Foreword
International trade and participation in global value chains have underpinned growth and development in
Asia and the Pacific for decades, backed by more open trade policies and lower tariffs, infrastructure, and
trade facilitation and finance. Indeed, some form of trade finance, such as trade credit and insurance, has
been used for an estimated 80% of international trade. Yet, unmet demand for trade finance—the trade
finance gap—remains persistently large.
That gap—which the latest Asian Development Bank (ADB) study estimates at about 10% of global
merchandise trade—represents lost economic and development opportunity. More importantly, the trade
finance shortage is even more acute for micro, small, and medium-sized enterprises (MSMEs), which
comprise more than 90% of firms and the bulk of employment in developing Asia. Strengthening their
participation in trade is thus crucial for inclusive trade and economic growth.
As such, the trade finance ecosystem plays a key role in facilitating trade flows, and understanding it
is important. Lacking data on the scope of trade finance, therefore, ADB and other institutions have
conducted surveys to gauge the needs of market participants and determine the policies needed to mitigate
this unmet demand.
This report provides a retrospective of ADB’s Trade Finance Gaps, Growth, and Jobs Survey, conducted
since 2012. It reviews the trends, research findings, and lessons of the past decade and discusses new
developments, including rapid digitalization in trade and trade finance markets. Authorities should address
and coordinate their responses to the chronic trade finance shortage in Asia and the Pacific by enhancing
public finance and through digitalization, nonbank financing, and multilateral support for trade finance,
digital infrastructure, and knowledge development.
Given the dominance of MSMEs in Asia, enabling their participation in international trade would promote
greater inclusivity in growth. But these firms usually lack the resources and collateral for qualifying for
trade finance loans and the know-how for navigating the complex and fragmented trade finance system.
Moreover, banks and other trade finance providers face high regulatory compliance costs.
Digitalization, which has accelerated during the pandemic, could drive down the cost of trade and trade
finance by simplifying the complex and redundant manual processes and reducing transaction costs.
But it requires strong policy support for domestic reforms and international cooperation to reduce barriers,
establish common standards, and connect isolated “digital islands” that have arisen.
vi
Foreword vii
Access to finance and expanded markets is crucial to MSME growth. Asia’s rapid digital transformation
offers a unique opportunity to create and capture new value from digital trade. However, firms need to learn
new ways of doing business and policy makers need to review and reform policy to address the challenges
and risks of digitalization, particularly those facing MSMEs.
The report identifies the specific challenges smaller firms must overcome in accessing trade finance and
makes policy recommendations to promote adoption and use of digital solutions among MSMEs. I am
confident the report will be useful to both policy makers and the private sector in achieving resilient and
sustainable recovery through inclusive and innovative trade finance.
Albert Francis Park
Chief Economist and Director General
Economic Research and Regional Cooperation Department
Asian Development Bank
Acknowledgments
This publication was jointly prepared by the Regional Cooperation and Integration Division (ERCI) of
the Economic Research and Regional Cooperation Department and the Trade and Supply Chain Finance
Program of the Asian Development Bank (ADB) with support from Technical Assistance 6668: Support for
Forward-Looking Trade Facilitation Measures in Asia and the Pacific.
Under the overall direction and guidance of ERCI Director Cyn-Young Park, the preparation of the
report was led by Kijin Kim with the support of Aleli Rosario. Contributing authors include Kijin Kim,
Ma. Concepcion Latoja, Mara Claire Tayag, Benjamin Endriga, Zemma Ardaniel, and Phillip Gerald Day.
The authors are grateful to Albert Park, Steven Beck, and Minsoo Lee for their feedback and strong support.
Eric Van Zant edited the manuscript. Mike Cortes created the cover design. Alvin Tubio did the layout and
typesetting. The material was proofread by Levi Lusterio with assistance from Carol Ongchangco and Aleli
Rosario. Support for printing and publishing the report was provided by the Printing Services Unit of ADB’s
Corporate Services Department and by the publishing team of the Department of Communications.
viii
Highlights
Unmet demand for trade finance has been persistently large for at least a decade, suggests the
Asian Development Bank (ADB) Trade Finance Gaps, Growth, and Jobs Survey since 2012.
The survey, widely known as the Trade Finance Survey, is based on responses from banks, firms, and
export credit agencies globally. Banks are included to profile factors that hinder trade finance supply, and
companies for demand-side factors of trade finance applications and rejections. Initially estimated at
$1.6 trillion in the fourth quarter of 2012, the trade finance gap moderated to $1.4 trillion in 2014, and
rose to $1.5 trillion in 2016 and $1.7 trillion in 2020 during the coronavirus disease (COVID-19) pandemic.
This amounts to about 7%–10% of global merchandise trade during this period.
As a vital instrument in facilitating trade flows, trade finance suffers from high perceived risk despite
low default rates. ADB and the International Chamber of Commerce established the Register on Trade and
Finance in 2009 to boost knowledge about trade finance and establish a repository of information to support
the low-risk nature of trade finance. The 2010 Register on Trade and Finance report indicated that trade
finance transactions were relatively short term (averaging 80 days) with very low default rates (averaging less
than 0.5%). Even when defaults occur, recovery rates are quite high.
The surveys indicate a structural shortfall in trade finance. Despite greater assistance from national
export credit agencies and multilateral development banks, barriers to narrowing the trade finance gap still
constrain the suppliers of trade finance and the firms seeking it. Micro, small, and medium-sized enterprises,
which play a key role in employment and inclusive growth, nonetheless continue to face high rejection rates
in trade finance applications. For banks, know-your-customer (KYC) and anti-money laundering (AML)
due diligence requirements raise the costs of extending trade finance loans, especially for small borrowers.
Asia and the Pacific has the highest share of trade finance proposals and rejections globally, suggesting
significant lost opportunity for trade and development.
Costly regulatory compliance limits bank lending to small firms, while collateral and other requirements
for firms present hurdles to their borrowings. Regulatory requirements such as KYC and AML raise the
cost to banks for providing loans and cause them to reject applications or terminate correspondent banking
relationships. Basel capital requirements also limit trade finance allocation. In 2021, more than 70% of
banks considered AML/KYC requirements the biggest hindrance to trade finance and around 60% the
Basel requirements. Meanwhile, firms have difficulty fulfilling requirements for collateral, documentation,
and valid company records. In the 2021 survey, banks rejected around 44% of loan proposals from unsuitable
applications, lack of collateral, and insufficient information; and 36% of firms considered collateral a major
factor for application rejections. Because Asia and the Pacific relies on bank-intermediated finance, it is
vulnerable to such rejections; and other modes of finance such as inter-firm, nonbank, and digital trade
finance remain limited. Moreover, small companies can often lack knowledge about trade finance products.
As many firms still have only limited knowledge of traditional and nontraditional sources of finance, they
rarely seek alternative sources for financing after banks reject their proposals.
ix
x Highlights
Digitalization and financial technology offer huge potential to reduce transaction and information
costs, but uptake is still limited. The 2017 survey indicated that 80% of banks expected technology
to reduce the costs of meeting regulatory and due diligence requirements, especially small banks.
In the 2019 survey, the majority of banks said they were enhancing readiness to service more small and
medium-sized enterprises through technology by more efficiently processing KYC (79%), deepening their
ability to data-map this market segment (73%), developing new products (70%), and possibly helping to
reduce their rejection rates (46%). Yet uptake of technologies was still limited. In the 2021 survey, 56% of
banks said they were constrained by the high cost of technology, 20% lacked expertise, and 18% had limited
connection to and interoperability of different financing platforms. Many respondent banks did use digital
solutions for digital filing and transmission and electronic signature platforms, while firms used them
primarily for digital record keeping and accounting.
A globally concerted effort is needed to enhance trade finance resources, digitalization, and
implementation of common standards to close trade finance gaps and promote sustainable economic
recovery. Further sector support from governments and multilateral institutions to catalyze funding for
micro, small, and medium-sized enterprises; women entrepreneurs; and other underserved segments can
encourage them to participate in trade and enable a business environment for private finance providers
to extend loans. Digitalization can also reduce information asymmetry between borrowers and lenders to
reduce the costs of information and finance provision for both parties. While most economies experience
rapid digital transformation, disparate system developments constrain the potential for creating a seamless
global system. International coordination is needed to achieve common standards and protocols, while
multilateral institutions can support and enable developing economies to gain the needed infrastructure and
know‑how. Examples of global efforts include support for the Digital Standard Initiative, the Legal Entity
Identifier system, and legislative reforms across countries to implement the Model Laws on Electronic
Transferable Records.
I
Introduction
Recent Trends in Trade and Trade Finance Gap
The coronavirus disease (COVID-19) pandemic saw global trade plunge to record lows in 2020.
Trade performance across the world deteriorated during the pandemic—global trade volume contracted
5.0% in 2020, to its biggest contraction since the global financial crisis of 2009. This occurred amid
temporary export and import bans on essential medical goods and equipment and trade restrictions on
critical food supplies (Figure 1). Port closures and stricter border crossing and quarantine procedures
impeded the seamless flow of goods. Temporary supply chain disruptions due to logistics bottlenecks in
sourcing raw materials and deploying key personnel on sites exacerbated the problems.
Figure 1: Growth in Merchandise Trade Volume and Real GDP—World
(%)
12
10
8
6
4
2
0
–2
–4
–6
2015 2016 2017 2018 2019 2020 2021 2022f 2023f
Trade GDP
f = forecast, GDP = gross domestic product.
Notes: Trade volume growth refers to the average of export and import volume growth. According to the World Trade Organization,
their trade growth forecasts are preliminary and may be subject to revision due to uncertainty about the course of the Russian invasion
of Ukraine.
Sources: International Monetary Fund. World Economic Outlook April 2022 Database. https://www.imf.org/en/Publications/
WEO/weo-database/2022/April for GDP growth; and World Trade Organization. WTO Stats. https://stats.wto.org for trade volume
growth (accessed 9 June 2022).
1
2 Toward Inclusive Access to Trade Finance
Global trade recovered sharply in 2021, but is expected to ease through 2022 and 2023. Global trade
volume grew at a record 9.9% in 2021, the combined effect of higher commodity prices, easier pandemic-
related mobility and trade restrictions, and a strong recovery in demand due in large part to economic
stimulus packages. As these trends are likely to moderate, global trade is expected to normalize during 2022.
According to new forecasts in April 2022, the World Trade Organization (WTO) (2022) expects global trade
volume to grow 3.0% in 2022 and 3.4% in 2023. The 2022 forecast was lowered from 4.7% as prospects for
the global economy dimmed with the Russian invasion of Ukraine in February 2022.
Lingering supply-chain bottlenecks, geopolitical tensions, and inflation could further dampen the global
trade outlook. The unprecedented supply chain disruptions that emerged during the COVID-19 pandemic
continue to contribute to supply shortages and rising shipping costs and freight rates have remained elevated
(UNCTAD 2022) (Figure 2). Global supply chain pressures are also likely to persist as the Russian Federation
continues its invasion of Ukraine, in that both economies are key global suppliers of raw materials for
semiconductor, automobile, and electronics manufacturing (ADB 2022). Escalating geopolitical tensions
could also raise energy and food prices further, stoking inflationary pressures.
Trade finance markets are vulnerable during economic and financial crises. During the global financial
crisis of 2008, 15%–20% of the drop in trade was attributable to trade finance shortages (IFC 2020).
Banking crises hamper export growth and affect firms more severely in countries with less developed
financial systems (Iacovone and Zavacka 2009). The effects of a trade credit collapse on exports also
worsen as crises deepen (Siregar 2010).
Figure 2: Shipping Indexes
(Jan 2018 = 100)
900
800
700
600
500
400
300
200
100
0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2018 2019 2020 2021 2022
Baltic Exchange Dry Index Freightos Global Container Freight Index
Notes: The Baltic Dry Index measures shipping costs for dry bulk commodities (including coal, grain, iron ore, finished steel, and
other metals, minerals, and similar materials). The Freightos Global Container Freight Index represents transport spot freight rates
for a standard 40-foot, unrefrigerated container, based on rolling tariffs and related surcharges reported by freight carriers, freight
forwarders, and shippers.
Source: CEIC Data Company (accessed 9 June 2022).
Introduction 3
The COVID-19 pandemic has led to a record high trade finance gap, that is, unmet demand.
The trade finance gap widened to an estimated $1.7 trillion in 2020, as per the latest Trade Finance Survey,
accounting for 10% of global goods trade (Kim et al. 2021a). The pandemic reduced merchandise trade
by 10% and global services trade by 19% in 2020 (over 2019), pushed up the cost of trade, and reduced
trade finance revenues (Patel 2021, African Development Bank, n.d.). Macroeconomic uncertainty also
intensified banks’ perceptions of increased default risks by its borrowers and overshadowed banks’ efforts to
maintain capital availability and credit lines for its clients, which led to higher rejection rates.
Increased economic and financial uncertainties do not bode well for the trade finance market in 2022.
Lingering market tensions fueled by geopolitics, supply chain disruptions, and inflationary pressures have
doused demand pent-up from the pandemic, and weaker global trade will bear down on exporters and
importers. In addition, tighter financing conditions are expected amid higher trade costs, including more
expensive export insurance, and as inflation erodes banks’ counterparty and country financing limits and
results in interest rate hikes. On top of existing onerous capital and regulatory requirements, heightened
risk aversion could also lead to even higher rejection rates in trade finance applications, as banks potentially
cease taking on new financing obligations. Not only would this compound existing constraints faced by
regular trade finance borrowers, but it would also make trade finance even more inaccessible to small
and medium-sized enterprises (SMEs) and women-owned enterprises. The overall result is a larger trade
finance gap.
Against this backdrop, the trade finance market will likely continue to suffer in 2022 with the gap
estimated to be at least $2 trillion. The trade finance gap has historically hovered around 7%–10% of global
merchandise export values, hitting its highest level during the pandemic in 2020. If merchandise trade
value is assumed to grow about 15% in 2022 based on the latest forecasts for global trade, and energy and
food prices (WTO 2022, World Bank 2022), maintaining a trade finance gap of 10% would result in a trade
finance gap of around $2 trillion (Figure 3). If constraints on trade finance push banks to reject more trade
finance proposals, the trade finance gap could be larger.
Figure 3: Trend of the Trade Finance Gap
2.5 0.12
10% 9% 10% 10%+
2.0 0.10
7% 8%
0.08
1.5
0.06
1.0
0.04
0.5 0.02
1.4 1.6 1.5 1.5 1.7 2.0+
0.0 0.00
2014 2015 2016 2018 2020 2021/2022(f)
Trade Finance Gap ($ trillion) (left) Trade Finance Gap share (% global merchandise exports)
Sources: Kim et al. 2021 and authors’ estimate.
4 Toward Inclusive Access to Trade Finance
Importance and Benefits of Trade Finance
Trade finance is indispensable to international trade. An umbrella term for a variety of financial instruments
that enable successful conduct of cross-border trading of goods and services, trade finance promotes
international trade by facilitating financing and payments and mitigating risks due to information asymmetry
(Figure 4). In 2020, the volume of trade finance transactions supported by major global banks was estimated
to be around $9 trillion and trade loans, letters of credit, and guarantees account for 90% of trade finance
transactions.
Trade finance significantly impacts trade flows and its availability and access help ensure the continuity
of international trade. A number of studies confirm the importance of access to trade finance on trade
and economic growth. Higher trade credit stimulates firms’ output and exports (Van Biesebroeck 2014,
Siregar 2010). Not only does trade finance correlate positively to import and export volumes, but countries
with access to external trade finance are also able to export more (Liston and McNeil 2014). Access to trade
finance is also essential for export orientation and internationalization of firms, especially SMEs, which expands
their access to cross-border markets and sharpens their competitiveness (Pietrovito and Pozzolo 2019).
Figure 4: Structure of Trade Finance by Transaction Type
Financial guarantees: $0.5 trillion (5%)
SCF payables finance: $0.5 trillion (5%)
Loans for import/export: $3.3 trillion (37%)
By transaction type
Performance guarantees: $1.3 trillion (14%)
Bank-intermediated
trade finance market Import L/C: $2.7 trillion (30%)
Export L/C: $0.8 trillion (9%)
Documentary business: $7.7 trillion (85%)
By product Buyer-led finance: $0.9 trillion (10%)
Cross-border supply-side finance: $0.5 trillion (5%)
MDB-financed: $18.0 billion ECA-supported: $2.5 trillion
ECA = export credit agencies, L/C = letter of credit, MDB = multilateral development bank, SCF = supply chain finance.
Notes: Global merchandise trade in 2020 is $35.5 trillion. Trade finance values are based on the estimated $9-trillion value of
transactions processed by respondents in the International Chamber of Commerce (ICC) Global Survey 2020. Documentary business
includes traditional on- and off-balance-sheet trade finance instruments, such as letters of credit, international guarantees, and banks’
payment obligations, which allow enterprises to cover the risks inherent in cross-border trade transactions. Buyer-led finance includes
products that enable both buyers and suppliers to optimize their working capital for cross-border trade through programs sponsored by
buyers such as payables financing (or reverse factoring), and dynamic discounting. Supplier-side finance includes factoring, receivables
discounting, forfaiting, and other products that address corporate sellers’ financing needs by anticipating the liquidity resulting from
commercial transactions.
Sources: Authors using ADB (2020c); ADB (2021b); Berne Union (2021); European Bank for Reconstruction and Development.
Trade Facilitation Programme: Overview. https://ebrd.com/work-with-us/trade-facilitation-programme.html (accessed 9 June 2022);
IDB Invest. https://idbinvest.org/tffp/en/ (accessed 9 June 2022); ICC (2020); ICC (2022); International Finance Corporation.
Global Trade Finance Program. https://www.ifc.org/wps/wcm/connect/industry_ext_content/ifc_external_corporate_site/
financial+institutions/priorities/global+trade/gtfp (accessed 9 June 2022); McKinsey & Company, International Chamber of
Commerce, and Fung Business Intelligence (2021); Sonbol (2021); and World Trade Organization. WTO Stats. https://timeseries.
wto.org/ for total merchandise trade (accessed 9 June 2022).
Introduction 5
Knowledge Gap and Motivation
for the Trade Finance Survey
Despite having generally low default rates, perceptions persist about trade finance instruments
becoming suddenly risky in times of heightened uncertainty or severe global shocks (ICC 2010).
For an asset class to be consistently perceived as carrying far more risk than it actually does points to
severe knowledge gap issues which, unfortunately, unfairly impact both exporters and importers. The
consequences of these negative perceptions often snowball into deep cuts in the income, output, and
employment prospects of firms, SMEs, and women-owned firms. Disseminating information on the low-risk
nature of trade finance using a comprehensive database could reduce the gap between the perceived and
actual risk level of trade finance transactions (IFC and WTO 2019).
To expand knowledge about trade finance and establish a repository of information to support the
low‑risk nature of trade finance, ADB and the International Chamber of Commerce agreed to establish
the Register on Trade and Finance in 2009. Up until that point, evidence was limited for the claim
that trade finance was, indeed, a relatively low-risk asset class. With an aggregate throughput value of
$2.5 trillion, the Register on Trade and Finance report in 2010 indicated that trade finance transactions were
relatively short term (averaging 80 days) and that trade finance instruments also had very low default rates
(averaging less than 0.5%). During 2008–2021, default rates were 0.10% and 0.02% respectively for import
and export letters of credit, while those for export/import loans were 0.18% over the same period (Table 1).
Even when defaults occur, recovery rates are fast and quite high: 62.7% and 63.7% for import and export
letters of credit, and 62.3% for export/import loans over the same period.
Table 1: Default Rates in Trade Finance Instruments, 2008–2021 (%)
Trade Finance Product Exposure Weighted Default Rate Recovery Rate Expected Loss
Import letters of credit 0.10 62.7 0.04
Export letters of credit 0.02 63.7 0.01
Loans for import/export 0.18 62.3 0.07
Performance guarantee 0.24 42.0 0.00
Supply chain finance 0.24 ... ...
Export finance 0.62 95.2 0.03
Notes: Exposure weighted default rate refers to bank-declared defaults weighted by the volume of exposure in line with Basel methodology.
Recovery rate is the extent to which principal and accrued interest on defaulted debt can be recovered. Expected losses refer to banks’
expected losses resulting from lending to borrowers that may default.
Source: ICC Trade Register Dashboard, https://iccwbo.org/publication/icc-trade-register-report/ (accessed 10 May 2022).
The gap between the perception and actual risk level of the transactions is clearly one of the main
causes of the lack of trade finance. One way to reduce the “confidence” gap is to continue disseminating
information about the low risk of trade finance and to maintain a strong database supporting this.
Key trade finance institutions and market players have also started publishing trade finance statistics,
which have added depth and nuance to the body of knowledge about trade finance gaps (Box 1).
6 Toward Inclusive Access to Trade Finance
Box 1: Statistics on Trade Finance
A single comprehensive source of cross-country trade finance data has yet to be established. However, key trade
finance market players regularly publish trade finance statistics such as size and composition by type of transactions
at an aggregate level. These include the Society for Worldwide Interbank Financial Telecommunication (SWIFT),
the International Union of Credit and Investment Insurers (Berne Union), Factoring International, and the International
Credit Insurance & Surety Association.
SWIFT relies on documentary finance instruments such as letters of credit at a higher data frequency. Data on trade
finance messaging traffic are available publicly and monthly for Europe, Middle East, and Africa; Americas and the UK;
and Asia and the Pacific. As 90% of letters of credit are transmitted via SWIFT, the data present an accurate snapshot of
documentary trade finance markets.a In the pre-pandemic period, total messages averaged 26.8 million annually from
2016 to 2019. Gains from infrastructure upgrades significantly improved the speed, transparency, and data capabilities.
The volume of messages increased to 28.3 million year-to-date in November 2021 from 26.8 million in the previous
year, after it had launched SWIFT Go in July 2021, a new service that enables financial institutions to offer a seamless
payments experience for the low-value transactions often initiated by small and medium-sized enterprises.b
Berne Union’s trade finance statistics are based on data provided twice annually by its members, which include
export credit agencies, private credit and political risk insurers, and multilateral institutions located in 73 economies.c
From 2016 to 2019, Berne Union’s support for exporters has risen an average of $300 billion annually. During the
coronavirus disease (COVID-19) pandemic in 2020, Berne Union’s export credit support rose to $2.52 trillion in new
financing, increase of 2.4% from 2019, on the back of higher short-term export credit as export credit agencies have
taken a more substantial role in responding to the pandemic by providing short-term liquidity and the surprisingly swift
rebound of the trade sector.
Factoring International is primarily engaged in factoring or accounts receivable financing of both domestic and
international trade receivables. Its global presence in 90 economies indicates that international factoring volume
jumped from $2.5 trillion in 2016 to $3.1 trillion in 2017 and has risen steadily since. By 2020, factoring volume topped
$3.4 trillion.d
The International Credit Insurance & Surety Association, which provides trade credit insurance and surety bonds to its
members, reported an insurance exposure of €2.4 trillion in 2020, lower than the €2.6 trillion average for 2016–2019.
Association members account for 95% of private credit insurance providers globally.e
a
ICC. 2016. Rethinking Trade and Finance: An ICC Private Sector Development Perspective. ICC Banking Commission.
https://cdn.iccwbo.org/content/uploads/sites/3/2016/10/ICC-Global-Trade-and-Finance-Survey-2016.pdf.
b
Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT in Figures. https://www.swift.com/about-us/
discover-swift/fin-traffic-figures/swift-fin-traffic-document-centre?category%5B0%5D=169561 (accessed 14 March 2022) and
SWIFT (2022).
c
Berne Union. 2021. Export Credit & Investment Insurance Industry Report 2020. https://www.berneunion.org/DataReports.
d
FCI (Association). Industry Statistics. https://fci.nl/en/industry-statistics (accessed June 2022).
e
International Credit Insurance & Surety Association. 2021. ICISA-TCI-Insured Exposure 2006–2020. https://icisa.org/wp-
content/uploads/2021/06/ICISA-TCI-Insured-Exposure-2006–2020.pdf.
Sources: ADB staff report using ICC (2016); SWIFT in Figures; SWIFT (2022); Berne Union (2021); FCI (Association); and
International Credit Insurance & Surety Association (2021).
Introduction 7
The data pooled by the Register on Finance and Trade provided impetus to review the risk-mitigating factors
of trade financing instruments under the Basel framework. It also paved the way for more refined data
collection exercises to underscore the role of trade finance in supporting international trade transactions for
global economic recovery and growth. Riding on this objective, ADB conducted a survey on trade finance
in the last quarter of 2012 to determine the trade finance gap and its link to production and jobs. From this
exercise, the ADB Trade Finance Gaps, Growth, and Jobs Survey was born.1
Given the dearth of data on trade finance, earlier ADB Trade Finance Surveys made effort to derive
data points and establish empirical information to clarify the links between trade finance and economic
growth and employment. Analysis of survey results aimed to help policy makers, regulators, and financial
institutions better understand the role and challenges that trade finance markets face, the issues facing
exporters and importers in accessing financing, and ways policy making could alleviate financial access
problems. As the surveys continued, the focus shifted primarily to identifying global gaps in trade finance
and ways to close the gaps.
Other institutions also conduct trade finance surveys and provide additional layers of information to better
understand and better address the implications of the trade finance gap. Firm-level surveys, such as those
by the International Chamber of Commerce, the International Finance Corporation, and the African
Development Bank have addressed the absence of systematic data on trade finance and complemented
macroeconomic statistics with information on use of trade finance instruments, especially for developing
economies where such data may be more limited (Box 2).
Box 2: Other Institutions Conducting Trade Finance Surveys
The International Chamber of Commerce, the International Finance Corporation, and the African Development Bank
also conduct trade finance surveys. Common objectives among these surveys are gauging the size of the trade finance
markets, identifying obstacles banks face in expanding operations, and determining how development finance
institutions can help mitigate financing gaps.
The International Chamber of Commerce trade finance survey started in 2008.a Since then, it has conducted annual
surveys with over 250 banks in more than 90 countries, the bulk coming from financial institutions in Asia and the Pacific
and Western Europe. For 2020, its survey covered 346 banks in 85 countries accounting for about $9 trillion in trade
finance transactions.a It focused mainly on the impacts of the pandemic and strategies adopted by banks, and included
the size and types of trade finance transactions, sectors, firm sizes, trade finance obstacles, digital preparedness, and
outlook in the next 1–5 years.
The International Finance Corporation conducts annual trade finance surveys among its partner banks to support
its Global Trade Finance Program. In 2020, its survey covered 163 of its financial institution clients in 69 emerging
market economies to determine the major disruptions caused by the coronavirus disease (COVID-19) crisis across
different sectors, the strategies adopted and support needed by banks, and the outlook on trade and trade finance.b
Its 2020 survey targeted only banks in emerging markets and focused on the operational and financial disruptions on
banks’ clients.
continued on next page
1
From here referred to as the ADB Trade Finance Survey.
8 Toward Inclusive Access to Trade Finance
Box 2, continued.
Since 2013, the African Development Bank has conducted three trade finance surveys with banks within the African
region as respondents. Its first survey highlighted the size of the financing gap and challenges faced by African financial
institutions, while the second survey examined the challenges of small and medium-sized enterprises and commercial
banks’ first-time trade finance clients. Its latest report took stock of the trade finance landscape in the 9 years to 2019
and revealed that unmet demand in trade finance declined from $120 billion in 2011 to $81 billion in 2019 on account
of the work of key players and development finance institutions.c Over the same period, however, trade finance
participation by banks steadily decreased from 92% to 71%, while rejection rates of small and medium-sized enterprise
trade finance applications increased from 20% to 40% during 2013–2019. Moreover, bank-intermediated trade finance
averaged only 40% of total trade in the region, compared to 80% globally.
Main findings in the surveys conducted by each of these organizations confirm key findings from the ADB Trade Finance
Surveys. These include the obstacles posed by know-your-customer and anti-money laundering compliance
requirements in expanding trade finance; the majority of rejected applications from micro, small, and medium-sized
enterprises; the tight availability of US dollar liquidity and higher costs of short-term financing of banks due to the
COVID-19 pandemic; and the greater use of digitalized products and processes by banks in response to the pandemic.
These surveys also indicated that banks sought assistance from development finance institutions and governments
during the pandemic and that receiving such assistance during normal times can help address the persistently large trade
finance gap.
a
ICC. 2020. 2020 ICC Global Survey on Trade Finance: Securing Future Growth. https://iccwbo.org/publication/global-survey/.
b
IFC. 2021. COVID-19 and Trade Finance in Emerging Markets. Washington, DC. https://www.ifc.org/wps/wcm/connect/
c5f0f4fe-ef39–4684-a602–37f3e53078a0/76329_Draft_03.24_11.35am.pdf?MOD=AJPERES&CVID=nxAUpKw.
c
African Development Bank. 2020. Trade Finance in Africa: Trends Over the Past Decade and Opportunities Ahead. https://www.
afdb.org/en/documents/trade-finance-africa-trends-over-past-decade-and-opportunities-ahead.
Source: ADB staff report using ICC (2020); IFC (2021); and African Development Bank (2020).
II
Background
ADB began conducting its Trade Finance Survey in 2012. Trade finance markets have evolved since as digital
solutions have spread, especially during the COVID-19 pandemic, and export credit agencies and multilateral
institutions have increased support. Despite these developments, the global trade finance gap remains wide.
While many factors continue to restrain trade finance among banks and keep small firms from accessing it,
digitalization offers greater opportunity to address some of these problems.
Access to Finance for Small Firms
Micro, small, and medium-sized enterprises (MSMEs) drive developing Asia’s economies and their
development remains key to promoting inclusive growth in the region. On average, MSMEs account for 97%
of all enterprises and 69% of national labor forces. In Southeast Asia, 61%–89% of MSMEs are in services, many
engaged in traditional wholesale and retail trade; 72%–85% of MSMEs operate in rural areas, while absorbing
70%–84% of MSME employees in their countries (ADB 2020a). In South Asia, MSMEs accounted for an average
99.6% of all enterprises, 76.6% of the workforce, and 33.9% of each country’s gross domestic product (GDP)
(ADB 2021a).
While MSMEs employ most workers in the region, their contribution to GDP and exports shows room
for improvement. This is reflected for instance in ADB’s survey of MSMEs in Southeast Asia and South Asia.
In Southeast Asia, while 69% of employees work in MSMEs, their contribution to GDP was only about 41% in
2010–2019 (Table 2). In South Asia, MSMEs accounted for 77% of total employees but only 34% of GDP.
Moreover, MSMEs serve mostly domestic markets and do not participate in global value chains as much as
large firms. About one in five MSMEs in developing Asia was able to export, compared to more than one‑third
of large firms (ADB 2019a). Access to international markets remains a major challenge for MSMEs in the region.
Table 2: Share of Micro, Small, and Medium-Sized Enterprises in Southeast Asia and South Asia (%)
Southeast Asia South Asia
Number of MSMEs to total enterprises 97.2 99.6
MSME employees to total employees 69.4 76.6
MSME contribution to national GDP 41.1 33.9
MSME export to total export value 20.4 47.0
GDP = gross domestic product, MSMEs = micro, small, and medium-sized enterprises.
Note: Figures for Southeast Asia refer to 2010–2019 (2010–2018 for exports), while those for South Asia are in 2020.
Sources: ADB 2020a, 2021a.
9
10 Toward Inclusive Access to Trade Finance
Enhancing the participation of MSMEs in global value chains is crucial to unlocking new productivity
and inclusive growth. The rise of value chains and e-commerce offers opportunities for MSMEs to engage in
international trade and contribute more to economies. This can be done by directly exporting intermediate
goods, services, or supply inputs to local or multinational firms (forward linkages), or by using imported
inputs in their production through backward linkages. Moreover, e-commerce can add to opportunities for
MSMEs by providing platforms for sales, marketing, payments, and financial access. Across South Asia for
instance, textiles and ready-made garments remain a promising MSME export opportunity (ADB 2021a).
However, MSMEs continue to face higher trade costs and are less equipped than large firms for
managing risks. In developing Asia, an estimated 96.7 million, or 43% of formal MSMEs, have unmet
financing needs, estimated at $2.6 trillion (ADB 2019b). Moreover, women-owned firms tend to face more
obstacles in getting credit, and account for 50% of the MSME financing gap in the region. Key challenges to
internationalizing MSMEs include (i) a lack of business links with large multinationals; (ii) a lack of quality,
competitive products, and low investment in research and development; (iii) a lack of business literacy and
capacity; (iv) weak regulatory compliance; and (v) limited access to finance (ADB 2021a).
Getting MSMEs more access to bank credit and finance is a crucial challenge in the region. For example,
in India, economic uncertainty during the pandemic led to weak consumer demand, making it difficult for
MSMEs to repay loans. It is also challenging for lenders to assess the creditworthiness of MSMEs due to a
lack of information, business records, and plans, especially in rural and remote areas. In Pakistan, commercial
bank credit is skewed toward the public sector with less risk as many MSMEs are unregistered and cannot
provide the documentation required for bank credit applications.
The pandemic hit MSMEs harder, exacerbating their chronic limited access to finance. A survey of more
than 30,000 business leaders across 50 countries found that 18% of SMEs in Asia and the Pacific had to close
their operations from January to May 2020 (Facebook, OECD, and World Bank 2020). In ADB’s MSME
survey in developing Asia in November 2020, these small firms reported widespread cuts in staffing and
in working hours across all countries. The report indicated that work from home was not a good option
for these firms, despite attempts to implement it (ADB 2020a). In the Lao People’s Democratic Republic,
the Philippines, and Thailand, about 60% of MSMEs saw no change in employment after the outbreak,
while the remaining 40% reduced their workforces. In Indonesia, 60% of MSMEs reduced staff during
March and April 2020, while more than half of small firms in Indonesia and the Philippines suspended
wages. MSMEs across the region also reported severe lack of funds to continue operations, including
difficulty in raising working capital to survive. In Indonesia, 88% of microenterprises had no cash or savings.
Export performance also declined. In South Asia, while MSME exports increased at a compound annual
growth rate of 2.9% from fiscal year 2013 through 2020, MSME exports fell sharply (17.5%) as foreign
demand declined during the COVID-19 pandemic (ADB 2021a).
Governments responded with several measures to tide SMEs over and avoid major bankruptcies,
keep MSMEs afloat, and defend employment. In Asia and the Pacific, debt finance was the top
government support for MSMEs during the COVID-19 pandemic, including new lending, rapid loan
approval, credit guarantees, and delayed repayments, followed by tax and employment support (Figure 5).
Small businesses outside the ambit of government support relied on borrowing from close relatives,
the most common source of financing for MSMEs. Many small firms also switched their businesses from
personal contact modes to e-commerce, while more digitally operated MSMEs started up or expanded their
mobile/online business strategies.
Background 11
Figure 5: Government Support for Micro, Small, and Medium-Sized Enterprises
in Asia and the Pacific
(as of October 2020)
Business costs Demand
Employment Business Other Business
Debt finance Tax support climate finance advice
Notes: Based on the number of each policy instrument; “Debt finance” instruments include new lending, rapid approval, credit
guarantees, delayed repayments, reduced or no interest for existing loans, and lowering capital requirements. “Tax” refers to incentives
given to corporates and investors for tax reductions, simplified tax procedures, and expedited tax reimbursements, among others.
“Employment support” covers subsidies related to wage, unemployment, labor training, and sick leave as well as new working schemes.
“Business costs” are instruments that reduce costs related to the business operations such as rent, utilities, government fees, and
compliance requirements. “Business climate” includes simplified foreign exchange arrangements, reduced import restrictions, and
increasing threshold for bankruptcy. The “demand” instrument is a form of stimulus package that targets specific sectors such as small
and medium-sized enterprises (SMEs) in tourism, and those that are in coronavirus disease (COVID-19)-related production, among
others. “Other finance” includes grants and cash flow assistance for firms that have reduced operations. “Business advice” covers
provision of vouchers for businesses to encourage SMEs to use online tools for remote working.
Source: World Bank. Map of SME-Support Measures in Response to COVID-19. https://www.worldbank.org/en/data/
interactive/2020/04/14/map-of-sme-support-measures-in-response-to-covid-19 (accessed 10 May 2022).
Trade and Supply Chain Finance Program
ADB established its Trade Finance Program in 2003 to fill funding gaps in trade finance, especially
for SMEs. Traditional purveyors of trade finance—the system of loans and guarantees that ensure buyers
of traded goods get the goods they pay for and sellers receive payment—are unwilling or unable to meet
demand in parts of developing Asia. That can be because of undeveloped regulatory regimes in some
countries, low ratings for countries or counterparty banks, or the risk reversal tendency of international
banks in times of crisis. The lack of trade finance limits growth and job creation and the entry of developing
country economies into the global trading system. ADB’s participation in the trade finance market means
that international banks can factor in its AAA rating and that trades which would not otherwise take place
can go ahead. The urgent need for ADB’s loans and guarantees to keep trade rolling in Asia can be seen in
the growth of the program, from a $150 million limit at inception in 2003 to $2.1 billion in 2022.
12 Toward Inclusive Access to Trade Finance
The Supply Chain Finance Program was launched as an accompaniment to the Trade Finance Program
in 2012. Supply chain finance is an innovative approach to financing SMEs. Traditional trade finance can
be difficult for some SMEs because of its focus on financials and collateral. In supply chain finance financial
institutions work with larger corporates to deliver financing to SMEs in their supply chain at reasonable rates.
Supply chain finance provides a steadier flow of working capital, which gives SME suppliers funds to seek out
more contracts and expand their businesses. Supply chain finance can be an important source of growth and
job creation, particularly among SMEs.
The two programs were merged operationally in 2020 into the Trade and Supply Chain Finance Program.
In 2021, the program took part in more than 9,000 trade and supply chain transactions worth almost
$8.4 billion, which included $5.5 billion in cofinancing generated from the private sector that otherwise
would likely not have been spent. The value of the trade transactions it supported in 2021 grew 38%,
while on the supply chain side they grew 52%. About 3,500 of those transactions directly benefited small
and medium‑sized companies. The Trade and Supply Chain Finance Program contributed importantly to
ADB’s COVID-19 response, including goods from vaccines and test kits to ventilators and other medical
supplies. For example, 40% of vaccines imported in Sri Lanka came through ADB-supported transactions.
In addition to transactions, the program developed a knowledge product it published on ADB’s website
that maps the entire supply chain—all the companies involved—in the manufacturing process of
34 COVID‑19‑related goods.2
As its work in the trade and supply chain finance markets has grown rapidly, so has the need for its
funding and capacity building efforts. Increasingly, the Trade and Supply Chain Finance Program has
also involved itself in shaping the market and the regulatory regimes that govern it to make them more
receptive to trade by developing countries. Those efforts engage the problem in two ways, first by helping
developing countries and their banks improve their practices and skills so they can be accepted within the
global system. The program works with regulators and governments as well as developing Asian banks to
help bring their systems up to speed. Second, the program works to minimize the ways the system fails
to accommodate developing countries and developing country banks. This work is carried out through
capacity‑building training and education, technological innovation, and participation in international
efforts to improve the system. One of the unintended consequences of new trade regulations, which seek
to combat criminal activity such as money laundering, is that they can also impede trade. In response,
the Trade and Supply Chain Finance Program is carrying out a pilot project with the United Nations
and developing member economies to ensure that new rules minimize negative effects (Beck and
Estrada 2021).
2
Asian Development Bank (ADB). Supply Chain Maps for Pandemic-Fighting Products. https://www.adb.org/multimedia/
scf/#/ (accessed 10 May 2022).
Background 13
Trade Finance Gaps, Growth, and Jobs Survey
Birth and history
ADB’s Trade Finance Program and Economic Research and Regional Cooperation Department began
a joint study in 2012 to better understand the challenges facing MSMEs in trade finance markets and
quantify unmet demand for trade finance, known as the global trade finance gap. The Trade Finance
Gaps, Growth, and Jobs Survey is based on responses from banks, firms, and export credit agencies
globally and is the world’s leading barometer of trade finance health. Among the key findings of this survey
was a trade finance gap of $1.6 trillion, of which $425 billion was in developing Asia. Survey results also
suggested that increasing trade finance by 5% could potentially lead to a 2% increase in both output and jobs.
Results of this survey were included in the release of the 2014 ADB Trade Finance Survey. Over the years,
the Trade Finance Program has updated this study to quantify and inform policy makers and market
participants about the main drivers for this persistent trade finance gap (Beck 2013).
Since 2012, ADB has gone through seven survey cycles until 2021. For each cycle, survey questionnaires
were created for bank respondents (2013–2021), companies (2013–2021), factoring companies
(2014–2016), forfaitors (2014–2016 and 2019), and credit insurance firms (2014–2016 and 2019).
Figure 6 indicates the number of participants and variations per survey cycle. Core questions per survey
cycle gather as many responses as possible for estimating the trade finance gap; additional questions
about current issues relevant to global trade finance are also explored for inclusion. Examples of
issue-related questions asked in previous surveys which could impact the trade finance environment
and its supply include commodity price fluctuation, trade tensions, and the COVID-19 pandemic.
Figure 6: Number of Respondents in the Trade Finance Surveys
2016
2015 2017
337 banks; 791 firms
253 banks; 393 firms 515 banks; 1,336 firms
2014 2019
101 banks; 583 firms 112 banks; 336 firms
2012/2013 ADB Trade 2021
Finance Gaps,
106 banks; 138 firms
Growth, and Jobs 79 banks; 583 firms
Survey
ADB = Asian Development Bank.
Source: Authors’ compilation using data from DiCaprio, Beck, and Daquis (2014); DiCaprio, Beck, and Daquis (2015); DiCaprio et al.
(2016); DiCaprio, Kim, and Beck (2017); Kim et al. (2019), and Kim et al. (2021).
14 Toward Inclusive Access to Trade Finance
Figure 7 summarizes how the trade finance survey is processed. Various public and private institutions have
supported the survey in designing, collecting responses, and reviewing results.3
Figure 7: Flow of Survey Development
Approved survey Launch and
• Outside of the trade questionnaire • Survey is uploaded monitoring of survey • Survey data are collected,
finance gap question, online and tested. cleaned, processed, and
ADB’s TSCFP and • Consultation with • Survey version in • Survey is launched on transformed into reports.
ERCD explore potential survey partners and document format is agreed date. • Some reports are tailored
theme issue which will collaborators also made available. • Survey monitoring for specific partners.
complement the • Review, modify, and to check uptake.
questions about the finalize survey questions Partner institutions are
trade finance gap. • Approval of survey alerted in case of
questionnaires slow response rate from
target respondents.
Initial draft of Uploaded Reports for sharing
survey questions online survey with partners
ERCD = Economic Research and Regional Cooperation Department, TSCFP = Trade and Supply Chain Finance Program.
Source: Authors.
Survey by Respondent
ɂɂ Bank Survey
The primary, necessary information to estimate the trade finance gap is collected through the bank
survey.4 Responses from the bank survey are processed to profile the major reasons why banks reject
trade finance applications and the various factors hindering trade financing. Each bank survey cycle also
included questions to ascertain banks’ opinions about issues that could impact their trade finance activities
(Figure 8). Perception-related surveys in 2014 to 2016 monitored banks’ views about the termination of
correspondent banking relationships, the costs of compliance requirements, and if these influenced banks’
attitudes toward rejection. In the 2017 and 2019 surveys, the issue of trade protectionism was raised
alongside anticipated changes in trade finance gap over the next 2 years. On the matter of the severity of
trade finance shortfall, some questions sought what banks think of the role of multilateral development
banks and export credit agencies in narrowing the trade finance gap. The 2021 survey dedicated questions
related to the pandemic and the availability of trade finance, the acceleration of available digital platforms,
and the extent to which trade finance could boost global economic recovery.
3
Major collaborators include ICC Banking Commission for the bank survey; Centre for the Promotion of Imports from Developing
Countries, International Trade Centre, Pacific Trade Invest, Central Asia Regional Economic Cooperation Program for the firm
survey; Berne Union for the Export Credit Agencies survey; the International Trade and Forfaiting Association for the forfaitor
survey; and Factors Chain International for the factor survey.
4
The latest survey questionnaires for banks and firms are presented in the Appendix.
Background 15
Figure 8: Select Perception-Related Questions in the Bank Surveys
2021: 2021:
2019, 2020:
2014, 2015, Do you To what extent
2015, 2016: 2015, 2016: 2017, 2019: Do you
2016: agree that the do you agree that
Do you expect Has your bank To what extent anticipate the
Did your bank COVID-19 providing more
the compliance declined any do you agree unmet demand
terminate pandemic has trade finance
requirements trade finance that trade for trade finance
correspondent accelerated/will is required to
for banks in transactions due protectionism support to
relationships in accelerate the boost trade and
trade finance to KYC/AML could widen the increase or
2013 due to the availability of trade-led growth
to increase issues from 2011 trade finance decrease over
increasing cost digital channels toward global
or decrease? to present? gap further? the coming two
of compliance? for trade economic
years?
finance? recovery?
AML = anti-money laundering, COVID-19 = coronavirus disease, KYC = know-your-customer.
Source: Authors’ compilation using ADB Trade Finance Gaps, Growth, and Jobs Survey—bank survey questionnaires.
With technology making greater inroads in international finance, the issue of digitalization was brought
to the fore in the 2017 survey cycle. Questions included the role of technology in the operation of
respondent banks, aspects of banking operations which were using technology, whether and how digitalization
technology enabled banks to deepen their engagement of SME clients, and the reasons inhibiting digitalization
adoption by banks. Analysis of these responses provided a window to technology’s potential in helping narrow
the trade finance gap.
ɂɂ Company Survey
Information collected from company surveys shed light on the demand side of trade finance by featuring
basic firm characteristics and the amounts of trade financing applied for and rejected. Firms’ perception
of why proposals were rejected were mirrored against banks’ reasons for rejection. The gap between these
reasons provided insights into the persistence of the trade finance, the possibilities to narrow them, and
the role of multilateral development banks and international stakeholders to reduce the financing gap.
Another objective of the company survey is to monitor key finance issues which impact the firms and
determine how the dynamics between external shocks and trade finance influence firms’ operations and ability
to create jobs, improve production, and promote inclusive growth.
Successive surveys find that companies lack knowledge about trade finance products and this persistent
knowledge and information gap presents a considerable barrier to their access to finance. Companies
were also asked how they think their staff might benefit from knowing about different forms of trade financing.
16 Toward Inclusive Access to Trade Finance
In surveys 2015 to 2017, firms were asked how an increase in trade financing might impact their operations,
revealing potential scenarios of greater sales, output, and increasing employment if only more financing could
be had. Firms’ behavior toward alternative sources of finance were also monitored throughout the surveys, and
since 2016, the survey featured questions on firms’ usage of fintech and digital finance as alternative sources.
Relatedly, the 2021 survey queried firms’ technology-usage behavior during the pandemic.
Gender-related perspectives were also obtained from company surveys beginning in 2016, when questions
about female ownership of firms and female employment were included. This enabled an initial (albeit rough)
map of female-owned firms in trade finance rejections and their alternative finance‑seeking behavior.
ɂɂ Factoring, forfaiting, and export credit insurance surveys
Surveys for factoring, forfaiting, and export credit insurance companies from 2014 to 2017 featured the trade
finance proposals received and rejected by these firms, the major reasons for rejecting proposals, impediments
to financing, and respondents’ perceptions about the trade finance shortfall. In 2019, survey questions given to
forfaiting and credit insurance companies focused on the role of technology and how it could potentially help
forfaitors and credit insurers service more SMEs.
The Trade Finance Gap
No precise statistical datasets exist to indicate the aggregate global demand for financing and the gross
amount of funding that is available for trade purposes. If comprehensive statistical data indicating the total
demand for and supply of trade finance were available, the trade finance gap would simply be the difference
between them. Given this shortcoming, the survey-based extrapolation estimation method is used. IFC (2017)
is one of the few attempts to estimate the MSME “financing gap” (covering trade finance gap in scope) was
made by using firm and country level data (Box 3).
The trade finance gap is estimated based on the amounts of trade finance applications that banks rejected
or did not support, using responses to questions about the total (estimated) US dollar value of trade finance
applications received and rejected by banks in specified year(s). The trade finance gap in the survey refers to
the amount of financing that is not available to support exporters and importers because of the inability of
financial institutions to meet the demand for trade finance. Figure 9 shows the gap-relevant questions from the
2021 survey.
Estimating the 2020 trade finance gap entails (i) knowing the total (estimated) US dollar value of trade finance
applications rejected by banks in 2020 and 2019, and (ii) applying the estimated 2020 growth rate on the
level of the trade finance gap in the previous trade finance survey. This methodology has been in use since
the 2019 survey. In the previous surveys, each response from the bank survey was weighted by the bank’s
total year-end assets. This process provides a proxy value of the survey’s global coverage. A global gap value
is then projected by dividing the gap reported by surveyed banks by its projection weight. Bank assets were
used because they are the most accessible, complete, and available information about banks. However, the
latest change in the methodology is a growth-rate-based extrapolation because the need to capture a gap
trend properly increased as the waves of the survey rose and changing bank samples in each wave resulted in
unstable aggregate level estimates.
Background 17
Figure 9: Survey Questions to Estimate the Trade Finance Gap
What was the total US dollar value of all trade finance applications—meaning all requests for trade
Application
finance support from clients and non-clients—your bank received in 2020? in 2019?
Given the total US dollar value of all trade finance transactions your bank received in 2020 (2019),
Rejection
how much did your bank reject/not support?
US = United States.
Source: 2021 ADB Trade Finance Gaps, Growth, and Jobs Survey Questionnaire—Banks.
Box 3: Estimating the Trade Finance Gap for Micro, Small, and Medium-Sized Enterprises
Using Other Data Sources
Only a few attempts exist to access the size of the micro, small, and medium-sized enterprise (MSME) (trade)
financing gap, other than the Trade Finance Gaps, Growth, and Jobs Survey of the Asian Development Bank (ADB).
For example, the International Finance Corporation introduced a new approach in estimating the unmet financing
requirement, particularly for MSMEs in developing economies.a
The financing gap refers to the difference of potential demand for financing and current available financing.
Their methodology relies on various databases and data repositories of the World Bank, International Monetary
Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD), among others. It creates
a counterfactual scenario to estimate the amount of financing that MSMEs need and that banks can provide in an
improved environment. To simulate this, 10 benchmark developed countries with smooth functioning credit markets
were identified. Mean debt‑to-sales ratios for major sectors of the economy were computed from firms in these countries
using the ORBIS database. These ratios are then applied to all MSMEs in each sector to derive the potential demand.
Finance supply for MSMEs, on the other hand, is based on the Financial Access Survey of the IMF and the OECD SME
Scorecard. The table compares various facets of the ADB and International Finance Corporation (IFC) surveys.
Table B3.1: Differences in Concepts
ADB Trade Finance Survey IFC MSME Finance Gap
Definition Rejected bank-intermediated trade finance applications Potential demand minus current supply financing
(by benchmarking 10 developed countries)
Method Survey-based extrapolation (from bank survey) Estimation based on existing data sources
(i.e., ORBIS database, FAS, etc.)
Firms All firms (MSMEs + large firms) involved in All MSMEs
cross‑border trade
Global Gap $1.5 trillion–$1.7 trillion [MSME: $0.6 trillion–$0.8 trillion $4.8 trillion (Micro: $0.6 trillion; SME: $4.1 trillion)
(40%–45%)]
Gap in Asia $0.7 trillion–$0.8 trillion (40%) $2.6 trillion (53%)
ADB = Asian Development Bank; FAS = Financial Access Survey; IFC = International Finance Corporation; MSMEs = micro, small,
and medium-sized enterprises; SMEs = small and medium-sized enterprises.
Sources: IFC (2017); DiCaprio, Kim, and Beck (2017); Kim et al. (2019); and Kim et al. (2021).
continued on next page
18 Toward Inclusive Access to Trade Finance
Box 3, continued.
Given the lack of a consistent, comparable set of statistics for the trade finance gap, this exercise is to create similar
composition and coverage of the trade finance market to allow for valid assessment. In carrying this out, we extrapolated
the International Finance Corporation series and trimmed the ADB sample, to merit comparison. Considering that the
IFC figures include all MSMEs regardless of the firms’ activities, we utilized the World Bank Enterprise Survey to limit
the sample to only firms engaged in cross-border activities. Drawing on the item, “Percent of firms exporting directly
and indirectly (at least 10% of sales)”, we applied this to derive the trade finance gap of MSMEs. To match this, the
ADB survey was also amended by filtering the sample to MSMEs only.
The figure shows the results of these adjustments. This activity yields similar results, when we adjust the sample space to
have similar composition. That is, limiting the scope of the ADB Trade Finance Gaps, Growth and Jobs Survey to MSMEs
only, and restricting the coverage of the IFC series to MSMEs with trading activities. The global trade finance gap for
MSMEs is tallied at around $0.7 trillion.
Figure B3.1: Trade Finance Gap Estimates for Micro, Small, and Medium-Sized Enterprises
a. ADB (developing and advanced economies) b. IFC (developing economies)
Global MSME Trade Global MSME Trade
Finance Gap Finance Gap
$0.6 trillion–
$0.7 trillion
$0.8 trillion
Global Trade Global MSME
Finance Gap Finance Gap
$1.5 trillion–$1.7 trillion $4.8 trillion
ADB Survey WB Enterprise Survey
(% rejection for MSMEs) (% direct/indirect export)
ADB = Asian Development Bank; IFC = International Finance Corporation; MSMEs = micro, small, and medium-sized enterprises;
WB = World Bank.
Sources: Authors’ estimates using IFC (2017); DiCaprio, Kim, and Beck (2017); Kim et al. (2019); Kim et al. (2021); and
World Bank Enterprise Survey.
a
IFC. 2017. MSME Finance Gap: Assessment of the Shortfalls and Opportunities in Financing Micro, Small, and Medium Enterprises
in Emerging Markets. Washington, DC. https://openknowledge.worldbank.org/handle/10986/28881.
Sources: ADB staff report using IFC (2017); DiCaprio, Kim, and Beck (2017); Kim et al. (2019); Kim et al. (2021); and World Bank
Enterprise Survey.
III
Major Findings and Insights
from the Surveys
The findings and lessons from the series of surveys provides a sound basis for policy formulation. The surveys
offer major findings, such as the persistence of trade finance gap, which tends to rise during economic crises,
the difficulties encountered by trade finance borrowers, their uptake of alternative trade finance sources, and
determinants of trade finance proposals. They also offer a glimpse into the potential of digital solutions and
fintech availability.
Bank Survey and Trade Finance Provision
Global trade finance gap values have been persistently large over the years. Initially estimated at
$1.6 trillion in the fourth quarter of 2012, the gap moderated to $1.4 trillion in 2014, rose to $1.5 trillion
in 2016, before peaking at $1.7 trillion in 2020 during the COVID-19 pandemic (Figure 10). Throughout
this period, the trade finance gap is proportional to around 7% to 10% of global merchandise trade.
The persistently large gap is also consistent with banks’ perception that the shortage in trade finance will
only increase (Figure 11).
The cost-push effect of complying with KYC and AML requirements has consistently hindered banks’
servicing of global trade finance needs. Banks identified regulatory and risk-related constraints among
the factors which consistently hinder their provision of trade finance (Figure 12). Complying with AML and
KYC provisions stands out among these factors not because they directly limit banks’ funding capabilities
but because complying with these diligence requirements is hugely time-consuming and, hence, increases
the cost of loan service provision. The complexity of complying with regulatory requirements, such as KYC
and AML procedures, increases the cost of processing loans, which can make trade finance providers very
selective of applications to approve.
Tight international guidelines and high fines imposed by authorities on noncompliance with AML/KYC
by banks have heightened the perception that while the requirements mitigate trade finance risks, they
can compound the trade finance gap and keep liquidity away from regions which need it most (Box 4).
Survey responses revealed that AML/KYC due diligence requirements were significant impediments to trade
finance provision because compliance is costly, resulting in banks declining transactions and terminating
correspondent relationships. De-risking strategies by around one-third of banks negatively impacted
importers and exporters, especially those in Asia and Africa.
19
20 Toward Inclusive Access to Trade Finance
Figure 11: Banks’ Perception of
Figure 10: Trade Finance Gap
Trade Finance Shortage
($ trillion)
(% of responses)
2.0 12.0 90
9.6 80 79%
10.0 9.7 9.4 10.0
70
1.5 61% 61%
8.6 8.0 60
7.7 55% 53%
7.4
50
1.0 6.0
40
4.0 30
0.5
20
1.6 1.9 1.4 1.6 1.5 1.5 1.7 2.0
10
0.0 0.0 0
2012 2013 2014 2015 2016 2018 2020 2014 2015 2016 2017 2019
Trade finance gap % of global merchandise
(left) exports (right)
Source: Authors’ calculations using DiCaprio, Beck, and Daquis (2014); DiCaprio, Beck, and Daquis (2015); DiCaprio et al. (2016);
DiCaprio, Kim, and Beck (2017); Kim et al. (2019); and Kim et al. (2021).
Figure 12: Top Impediments to Trade Finance Provision
100
80
60
40
20
0
2014 2015 2016 2017 2019 2021
AML/KYC Basel regulatory capital Country rating Bank rating Obligor rating
requirements requirements
AML = anti-money laundering, KYC = know-your-customer.
Source: Authors’ compilation using DiCaprio, Beck, and Daquis (2014); DiCaprio, Beck, and Daquis (2015); DiCaprio et al. (2016);
DiCaprio, Kim, and Beck (2017); Kim et al. (2019); and Kim et al. (2021).
Major Findings and Insights from the Surveys 21
Box 4: Regulatory Compliance Requirements—Necessary but Costly
The complex and highly distributed nature of trade finance has exposed it to fraud and illicit money laundering activities.
These illegal activities using the trade finance platforms are part of the umbrella term “trade-based money laundering.”a
According to a survey conducted by the International Chamber of Commerce in 2015, around 20% of responding banks
saw an increase in trade finance related fraud. As regulators responded by introducing more stringent compliance
requirements and imposing heavy fines on offenders, banks have been fined billions of dollars for these compliance
transgressions (Hu 2016).b
Higher costs resulting from regulatory compliance have also caused banks to terminate corresponding banking
relationships (also known as de-risking) and decline transactions, affecting at least 40% of surveyed banks in 2014 and
2015 (DiCaprio et al. 2014, 2015). Cuts made in low-income regions to were so sharp to the point some economies
in these regions have practically been excluded from international financial networks.c This has brought serious
consequence when it comes to the exchange of goods and services and may have even compromised the economic
development of affected low-income economies (Arcand 2016).d
a
“Trade-based money laundering” covers a broad spectrum of financial and other services, including those financial services referred
to as trade finance, but also transactional activities across current and deposit accounts, payments, etc., which are not in the purview
of trade finance operations of financial institutions (ICC and BAFT 2019).
b
Hu, C. 2016. De-risking and its Implications on Trade and Finance in Asia Pacific. The Asian Banker. 3 October.
https://www.theasianbanker.com/updates-and-articles/de-risking-and-its-implications-on-trade-finance-in-asia-pacific.
c
Trade finance instruments, intermediated by commercial banks, are premised on an existing credit relationship between
counterparty banks. International banks, which are, for example, required to “confirm” the future payment to the exporter, take on
the reimbursement risk related to local emerging market banks. Thus, for goods to be shipped, a confirming bank must be willing to
take the payment risk of the local bank. This may not be possible if the trade finance transaction causes that international confirming
bank to exceed its client or country exposure limits (IFC and WTO 2019).
d
Arcand, J. 2016. Options for Trade, Finance and Development: Getting the Institutions Right. E15 Expert Group on Trade, Finance
and Development – Policy Options Paper. E15 Initiative. International Centre for Trade and Sustainable Development and World
Economic Forum, Geneva. https://www3.weforum.org/docs/E15/WEF_Finance_Development_report_2015_1401.pdf.
Sources: Author and ADB staff report using Arcand (2016); DiCaprio, Beck, and Daquis (2014, 2015); Hu (2016); IFC and WTO
(2019); and Wolfsberg Group, ICC, and BAFT (2019).
Basel requirements, on the other hand, mandate banks to hold more capital on their balance sheets,
which induce banks to lend selectively and only to highest-rated borrowers (Clark 2017). Differences in
risk weighting also tilt financing away from emerging markets and low-income economies. Organisation for
Economic Co-operation and Development economies are assigned a 20% risk-weighting, while weights for
developing economies are higher and could be as much as 150%. This makes banks much more likely to lend
to larger corporations in developed economies than to SMEs in emerging markets.
The uncertainty of the COVID-19 crisis could affect the flow of economic activity and financing in the
medium term. A 2020 report by the International Chamber of Commerce has indicated that 70% of banks
see traditional trade finance among its priority areas of development, alongside digital trade and online
platforms, and supply chain financing. Yet, even with these pockets of opportunities, at least half of banks
surveyed in 2021 were concerned that future growth will be hindered by usual suspects—capital regulatory
and compliance requirements. These pernicious constraints not only affect banks’ financing provision
capabilities, but also influence banks’ willingness or reluctance to lend to different client segments.
22 Toward Inclusive Access to Trade Finance
Figure 13: Trade Finance Proposals and Rejections by Region, 2016
14% 24%
MENA/SSA
A. Asia A. Asia
D. Asia 40% 34% D. Asia
Asia and the Pacific India
India
Proposed 9% 18% Rejected PRC
PRC Russian Federation
& CIS
Pacific
Pacific 14% 9%
Americas
23% 15%
Europe
A. Asia = Advanced Asia (Hong Kong, China; Japan; the Republic of Korea; and Singapore); CIS = Commonwealth of Independent
States; D. Asia = Developing Asia excluding the PRC and India; MENA = Middle East and North Africa; PRC = People’s Republic of
China; SSA = Sub-Saharan Africa.
Source: DiCaprio et al. (2016).
Asia and the Pacific is a key player in the global trade finance market, but its reliance on
bank‑intermediated finance leaves firms in the region vulnerable to trade finance rejections.
Traders from the region account for the highest rates of both proposals and rejections—in 2016, for
instance, the region accounted for 40% of global proposals and a rejection rate of 34% (Figure 13).
Relative to their European counterparts, firms in Asia and the Pacific lag in accessing inter-firm, nonbank,
and digital trade finance channels and rely mostly, instead, on bank-supplied trade finance services
(Narain 2015). Accessing innovative nonbank channels has yet to be a standard recourse for cross-border
trading firms in Asia and the Pacific. This makes the trade finance gap and the generally limited access
to finance among the primary barriers to business growth in the region. Dominance by banks in financial
intermediation suggests that financial markets in Asia have more than enough wiggle room to let more
nonbank entities enter the financial industry and for regulators to permit nonbank credit providers to provide
adequate and timely financial services to more geographies and client segments.
Company Survey and Firms’ Access to Finance
Global shocks such as the global financial crisis, rising protectionism, the pandemic, and war impact
most economic activities and access to trade finance, especially for MSMEs, business firms integral to
developing Asia’s business landscape. One objective of the company survey was to monitor key finance
issues which impact the firms and determine how the dynamics between external shocks and trade finance
influence firms’ operations and ability to create jobs, improve production, and promote inclusive growth.
Major Findings and Insights from the Surveys 23
Persistent Gaps in Access to Trade Finance
Successfully accessing trade finance remains a staple constraint of SMEs. The survey results suggest that
SMEs generally show higher share of total rejections relative to share of total proposals, which implies that
SMEs have to face higher rejection rates (Figure 14). This may suggest systemic stubbornness on the part
of both banks and SMEs: to mitigate risk on SME borrowers, banks generally tend to subject smaller firms to
requirements such as high loan collaterals and third-party guarantees, which add another layer of barrier to
accessing finance. In economies tagged as high loan default markets, banks may charge very high interest
rates on top of collateral conditions, crowding out smaller trading firms which might not have the resources
to operate at scale, furthering the trade finance divide. This difficult access to finance—coupled with limited
access to market and entrepreneurial networks—lowers the economic participation of SMEs and restrains its
capacity to grow, create more jobs, and contribute to the achievement of Sustainable Development Goals.
To break this cycle of stringent collateral requirements from firms that could hardly comply, banks should
evolve more innovative credit-scoring and evaluation techniques by exploring alternative data points to be
used as indicators of smaller firms’ financial activities and viability (Iskenderian 2017).
Figure 14: Share of Rejections, by Firm Size
a. Proposals b. Rejections
60% 54% 52%
50% 48%
39% 42% 40%
40%
30% 26%
23% 23% 22%
19%
20%
12%
10%
0%
Multinationals Large corporations SMEs Multinationals Large corporations SMEs
and mid-cap and mid-cap
2016 2020
mid-cap = mid-capitalization, SMEs = small and medium-sized enterprises.
Source: Authors’ compilation using DiCaprio et al. (2016), Kim et al. (2019), and Kim et al. (2021).
The gender divide in financial access remains less favorable to women-owned firms. The International
Finance Corporation (IFC) estimates that a $300 billion gap in financing exists for formal, women‑owned
small businesses, and more than 70% of women-owned SMEs have inadequate or no access to financial
services.5 Women-owned businesses account for 23% of MSMEs and 32% of the MSME finance gap.6
5
IFC. Bridging the Gender Gap in Access to Finance. https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_
corporate_site/news+and+events/news/bridging+the+gender+gap+in+access+to+finance (accessed 14 March 2022).
6
SME Finance Forum. https://www.smefinanceforum.org/data-sites/msme-finance-gap (accessed 10 May 2022).
24 Toward Inclusive Access to Trade Finance
A study of women-owned SMEs in Cambodia, Indonesia, the Philippines, and Viet Nam found that
79%–97% are unserved, underserved or choose not to access formal financing (Women’s World Banking
2015). This difficulty in accessing finance could be related to the characteristics of firms that women
own and operate rather than women’s ownership per se. Women-owned business tend to concentrate in
operating smaller and informal firms where establishing strong financials and formal creditworthiness can
be challenging (IFC 2011; DiCaprio, Kim, and Beck 2017). As such, women-led firms are also likely to
face higher rejection rates and therefore greater financing gaps than businesses led by well‑represented
groups (Kim et al. 2021). ADB trade finance surveys in 2017 and 2019 reveal related results—that is,
woman‑owned firms faced higher rejection rates than male-owned firms (DiCaprio, Kim, and Beck 2017;
Kim et al. 2019).7 Women-owned firms also have to struggle more to earn revenues, earning just $0.3 for
every dollar earned by a privately held company (Fallon 2020).
Lack of funding and skewed access to finance worsened during the pandemic when balance sheets
weakened—female-owned businesses tend to have lower capital reserves when income stream is low
and uneven—and aggravated the challenge of coming up with collateral deposits required by banks
(EU Business School 2021, Kim et al. 2021). An analysis of firm-level data during the COVID-19 crisis
revealed that women-owned firms displayed deeper financial distress than male-owned firms and were more
than twice as likely to have their loan applications rejected than male-owned firms (Hyland et al. 2021).
In the face of restrictive access to bank-supplied finance, woman-led firms are also twice as likely to turn
to informal financial providers, which impose higher interest on loans but are considered more flexible loan
sources than banks (DiCaprio et al. 2016; Women’s World Banking 2015).
Overall, attracting, retaining, and promoting more women in the global financial system is important to
closing the gap (Kim et al. 2021). Advancing practical gender- and diversity-inclusive financial access
policies could lessen challenges faced by entrepreneurs from underrepresented groups by making trade
finance support more accessible to women-owned businesses.
Perceptions About Rejections
Firms are aware that failure to fulfill standard banking requirements is the main cause of rejection by
banks. Analysis of ADB Trade Finance Survey responses indicates that collateral, documentation, and valid
company records comprise the holy trinity of bank requirements for which failure to comply would result
in the rejection of a loan proposal. In the 2021 survey, for instance, banks rejected around 44% of loan
proposals because the application was totally unsuitable to support, did not have enough collateral, and had
insufficient information (Figure 15, panel a). Collateral requirements are onerous for businesses and around
36% of firms believe this requirement to be the tipping point of rejected loan applications (Figure 15, panel b).
Smaller firms are at a disadvantage at the outset because they are perceived to have limited collateral which
makes banks cautious to lend, especially in developing economies where legal systems backing property
registry and enforcement of property rights are likely to be weak.
7
In the 2017 ADB Trade Finance Survey, women-owned firms were 2.5 times more likely to have 100% of their proposals rejected
by banks than male-owned firms. In the 2019 ADB Trade Finance Survey, proposals from women-owned firms were 44%
compared to 38% for male-owned firms.
Major Findings and Insights from the Surveys 25
Figure 15: Why Firms’ Trade Finance Proposals Are Rejected
a. Reasons for Rejection by Banks b. Firms’ Perception on Reasons for Rejection
Application was completely Insufficient collateral
19% 36%
unsuitable for support and/or guarantee
Application lacked The bank’s interest rates
15% 18%
additional collateral or fees were too high
COVID-19-related concerns No previous transactions or
affecting banks, companies, 11% lack of business relationship 17%
or countries with financial institution
Application raised serious
10% My country has “high risk” rating 11%
KYC concerns
Application was not profitable Inability to fulfill all
10% 10%
enough to process documentation requirements
Application was poorly
Insufficient credit and/or
presented and had insufficient 8% 8%
performance history
information
Application was not profitable
to process due to regulatory 8% AML/KYC requirements 0%
capital constraints
0 5 10 15 20 25 30 35 40
Other reasons 19%
%
0 5 10 15 20
%
AML = anti-money laundering, KYC = know-your-customer.
Source: Authors’ calculations using data from the 2021 ADB Trade Finance Gaps, Growth, and Jobs Survey—Bank and Company Surveys.
The time and effort to process applications and provide advisory support to SME clients reinforce the
perception that SME loan transactions are high-cost transactions. Compared to bigger firms for which
due diligence and disclosure are common, SMEs tend to report only the minimum information required
by banks. This opacity aggravates systemic information gaps between banks and SMEs, reinforcing bank
perceptions that SMEs are high cost-to-serve clients while inadvertently eroding opportunities for SMEs to
display capacity and willingness to pay. In times of crises such as the COVID-19 pandemic, when formal
lending sources could be overly cautious to lend, available financing could come at a cost so high it would
discourage businesses to borrow, especially SMEs. In the 2021 ADB Trade Finance Survey, 73% of banks
neither reduced capital availability nor reduced limits to support trade, and 58% of banks did not reduce
funds for SMEs (Figure 16). Yet, the pandemic heightened macroeconomic uncertainties, which intensified
banks’ perceptions of increased default risk, resulting in higher rejection rates—40% of SMEs applications
were rejected.
26 Toward Inclusive Access to Trade Finance
Figure 16: COVID-19 Pandemic Trade Finance Support, Shortage, and Anticipated Defaults
(% of responses)
Did you reduce capital availability to support trade? 14% 79% 7%
Did you reduce limits available to support trade? 27% 73%
Did the pandemic worsen the shortage of trade finance support? 57% 36% 7%
Do you anticipate an increase in trade finance defaults due to COVID-19? 50% 49% 1%
0% 20% 40% 60% 80% 100%
Yes No Don’t know
COVID-19 = coronavirus disease.
Source: Kim et al. 2021.
Many SMEs lack knowledge about the common required practice of information disclosure, consequently
impacting their behavior when transacting with lending institutions. Rather than viewing disclosure as a
form of market discipline toward competitiveness, many small firms consider it tantamount to surrendering
business independence. SMEs used to making quick business decisions might have limited appreciation
for the premium banks put on KYC processes and the time banks require to assess and evaluate trade
finance applications—less than 1% of firms cited KYC as a potential reason behind trade finance rejections
(Figure 15, panel b). Firms which find banks’ application processes lengthy and bureaucratic could lose
interest in accessing formal finance.
Alternative Financing Including Fintech Platforms
Firms with rejected trade finance applications face limited success in accessing alternative finance.
Limited knowledge of both traditional and nontraditional sources of finance may be behind the high
proportion of companies which reported not seeking alternative sources of finance—in the 2016 survey,
70% of respondents were unfamiliar with any type of trade finance; in 2017, 53% of rejected firms did not
bother to look for alternative sources (DiCaprio et al. 2016; DiCaprio, Beck, and Kim 2017). Smaller firms
with rejected proposals tend to rely on internal sources and informal financial providers, reinforcing the
underserved status of this market segment. In the 2019 survey, among SMEs initially rejected and that sought
alternative sources, 47% were unable to find anything suitable. In the 2021 survey, among SMEs which sought
alternative financing, 39% resorted to using their own funds while a slightly higher percentage (17%) resorted
to informal financing rather than formal financing alternatives (14%) (Figure 17, panel a). Around 18% of
rejected small firms were unable to find anything appropriate. Among firms that used formal financing
alternatives, the uptake of digital finance remains negligible (1.0%). Firms which sought informal finance
resorted mostly to business partners or family members and relatives before seeking out other informal
sources (Figure 17, panel b).
Major Findings and Insights from the Surveys 27
Figure 17: Behavior of Small and Medium-Sized Enterprises Toward Alternative Financing, 2021
a. Alternative Financing Sources Sought
Used own funds or retained earnings 39%
Unable to find appropriate financing alternative 18%
Used informal financing successfully 17%
Used formal alternative financing successfully 14%
Did not look for alternative sources 5%
Found formal alternative financing but opted not to use it 3%
Found informal financing but opted not to use it 2%
Found digital finance but opted not to use it 1%
Used digital finance successfully 1%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
b. Informal Financing Sources Sought
35% 32%
30%
25% 23%
19% 18%
20%
15%
9%
10%
5%
0%
Business partners Family members Moneylenders Informal savings Diaspora associations,
and relatives and credit groups friends, and neighbors
Sources: Authors using data from 2021 ADB Trade Finance Survey.
Increased regulation of banks and emerging technology solutions in financial services will likely push
small businesses to seek other ways of raising capital and accessing credit. During the recovery from
COVID-19, banks are especially likely to focus on restructuring bad debts and portfolios rather than
extending new credit. This may further constrain credit in affected sectors such as tourism and retail.
Fintech companies and informal credit providers may be able to offer more flexible products for borrowers
and better returns for investors than bank deposit rates. Financial regulators should consider appropriate
regulatory frameworks for fintech and informal credit markets by putting consumer protection at the top of
policy priority but avoid stifling innovation.
28 Toward Inclusive Access to Trade Finance
Trade finance has also been increasingly attracting private credit participation due to low default rates
and the short tenor of trade finance instruments. A survey by Simmons and Simmons (2021) based on
a global sample of 151 banks, corporates, and alternative asset managers revealed that about half of the
respondents have direct exposure to trade finance, while 47% indicated having both direct and indirect
exposure (Box 5). Alternative asset managers with exposure to trade finance assets also noted increasing
likelihood of obtaining higher returns for their investors. These include pension funds, insurance, and hedge
funds that have invested in trade finance assets, while regulatory capital requirements have motivated banks
to securitize portfolios of trade finance to add to capital for additional lending.
Box 5: Trade Finance Activity in Private Credit Markets
Private credit assets under management nearly tripled from $275 billion in 2009 to more than $800 billion in 2019
(Ellwood-Russell and Sung 2020).a This is due to bank retrenchment, borrower demand for tailored finance solutions,
and investor appetite for differentiated returns since the global financial crisis. Although private credit growth is more
prevalent in the United States and United Kingdom, private credit assets under management in Asia and the Pacific
grew nearly fivefold from $12.4 billion to about $57 billion in 2019, but the region’s share of the private credit market is
around 7%.
Alternative asset managers participate indirectly or directly in trade finance markets. In indirect participation, the most
common, the arranging bank sells participation in a trade finance loan to the alternative asset manager, which passively
holds the exposure to maturity (Figure B5.1, panel a). The alternative asset manager still performs due diligence with
a record of commodities, countries, exporters, and importers, effectively acting as “lender of record” with a direct
relationship with the borrower rather than entering a “sub-participation” agreement (Cambridge Associates 2018).
Alternative asset managers specializing in trade finance may also directly originate, underwrite, and manage their own
trade finance loans (Figure B5.1, panel b). This requires them to evaluate borrowers and commodities, while having the
requisite infrastructure to collect and review documents, track shipments, and secure payments. This will often have
higher interest rates but more flexible financing terms and faster execution for borrowers.
Figure B5.1: Participation by Alternative Asset Managers
a. Indirect Participation b. Direct Participation
Traditional lenders AAM structured AAM structured
trade finance fund trade finance fund
Trade finance loan book
Trade finance loan book
Syndicated
Borrowers Borrowers
AAM = alternative asset manager.
Source: Chaturvedi (2018).
continued on next page
Major Findings and Insights from the Surveys 29
Box 5, continued.
The survey in Simmons and Simmons (2021) finds that banks partner with alternative asset managers in order to
mitigate risk, lessen financial strain (both 67% of respondent banks), and gain from the ability of alternative asset
managers to enter regions where banks found it difficult to enter (53%) (Figure B5.2). Alternative asset managers also
benefit from banks’ established relationships with trade finance borrowers, while also potentially offering borrowers
lower interest rates by partnering with banks rather than acting on their own. Alternative asset managers in effect can
benefit from the origination loan capabilities of banks. Moreover, 48% of corporates note that their inability to gain bank
funding was the main reason for choosing to access private credit (Figure B5.3). Firms also benefit from alternative asset
managers’ faster decision-making and execution times and greater flexibility.
Figure B5.2: Reasons Banks Work with Figure B5.3: Reasons Corporates Access
Alternative Asset Managers Private Credit
(% of responses) (% of responses)
Reasons for Rejection by Banks Firms’ Perception on Reasons for Rejection
AAMs help banks mitigate risk
67% AAMs have faster execution times 48%
by taking first loss
AAMs remove some of
the strain from commodity 67% Banks will not give access to funds 48%
trade finance banks
AAMs can enter regions that
53% AAMs offer bespoke financing 43%
banks find difficult to enter
AAMs operate quicker and
27% Strong relationships 38%
with more flexibility
AAMs can act as buffer Too much regulatory and
20% 33%
for the work of banks compliance requirements ...
AAMs offer attractive products 14%
AAM = alternative asset manager.
Source: Simmons and Simmons (2021).
a
Private credit is an umbrella term for lending by nonbanks, referring usually to regulated asset management firms such as pension
funds, insurance companies, hedge funds, and others that pool investor money into funds used to finance businesses (Simmons and
Simmons 2021).
Sources: ADB staff report using Chaturvedi (2018) and Simmons and Simmons (2021).
30 Toward Inclusive Access to Trade Finance
Digitalization
Digitalization has great potential to help overcome trade finance issues. Beginning in 2017, the ADB
Trade Finance Surveys have included questions on technology to determine banks’ perception of its impact
on banking operations, banks’ attitudes to enhancing digitalization and how they think technology would
help them better engage their SME clients (Figure 18). Survey results in 2017 indicated that 80% of banks
expect technology to reduce the costs associated with regulatory requirements and due diligence, especially
for small banks (Figure 19, panel a). The majority of banks reported gearing up to service more SMEs
through technology in the 2019 survey—by more efficiently processing KYC (79%), deepening their ability
to data-map this market segment (73%), developing new products (70%), and possibly helping to reduce
their rejection rates (46%) (Figure 19, panel b). A similar pattern in the shares of responses to all areas of
technology‑driven improvement was captured in the 2021 survey.
Considerable knowledge gap persists about fintech and trade finance. Many firms lack knowledge
about trade finance and during the early survey cycles when around 78% of companies reported that
they would benefit from greater financial education (DiCaprio, Beck, and Daquis 2014). In the case of
nontraditional products such as factoring, forfaiting, and supply chain finance, less than 40% of companies
report familiarity with these instruments. Even within traditional bank products, companies reported limited
familiarity with relatively established products such as credit insurance. Although invoice financing is
relatively well‑known and used, at least half of responding firms are unaware of alternate tech-related ways
of obtaining trade finance.
Figure 18: Survey Questions on Financial Technology and Trade Finance
• To what extent do you agree/disagree that financial technology will impact your bank’s ability
2017 to do more transactions, i.e., enhance risk assessment of smaller clients; reduce cost of due diligence;
and facilitate KYC checks?
• To what extent do you agree/disagree that technology such as fintech and digitalization will enhance
your bank’s engagement with SMEs?
2019 • Is your bank gearing up to service more SMEs through technology?
• Please rank from strongest (1) to weakest (4 or 5) reason why your bank is not positioning to maximize
potential to service more SMEs through technology.
• Since the pandemic, how has your bank enhanced digitalization or enhanced plans to digitize operations?
2021 • To what extent do you agree/disagree that technology such as fintech and digitalization will enhance
your bank’s engagement with SMEs?
KYC = know-your-customer, SMEs = small and medium-sized enterprises.
Source: ADB Trade Finance Gaps, Growth, and Jobs Survey—Banks.
Major Findings and Insights from the Surveys 31
Figure 19: Expected Impacts of Digitalization on Banking Business (%)
a. On Bank Processes by Bank Asset Size, 2017
90
80
70
28%
28%
60
21% Small
50
17% Medium-sized
40 17%
15%
Large
30
20 36% 33% 31%
10
0
Facilitates KYC checks Reduces costs of Enhances ability to assess risk
due diligence of small clients
b. On Engagement with SMEs
Deepen data-mapping for SMEs
Develop easier, cheaper, quicker KYC 2020
Develop new products for SMEs 2019
Reduce rejection rate of proposals from SMEs
0 20 40 60 80 100
KYC = know-your-customer, SMEs = small and medium-sized enterprises.
Notes: Values refer to agree and strongly agree responses as percentage of total responses. Large banks are those whose assets in 2016
are higher than $50 billion, medium-sized between $10 billion and $50 billion, and small less than $10 billion.
Sources: DiCaprio et al. (2017); Kim et al. (2019); and Kim et al. (2021).
Adopting technology-driven processes can make trade finance more accessible, inclusive, and useful
in narrowing the trade finance gap. A legacy of traditional trade finance is that most processes are
still largely paper-based, meaning all information is locked on paper. Normally, banks only capture around
40–50 key pieces of information from paper documents for screening, leaving a lot of unchecked information
(De Jong 2018). Rapid developments in technology hold immense potential to transform cumbersome
and time‑consuming trade finance processes (Figure 20). Technology solutions enabling automated
document/data-checking and validation plus critical compliance and trade-based money laundering checks
can facilitate KYC procedures in less time. Electronic trade documents provide increased end-to-end
visibility and reduce the risk of fraud. Banks are exploring the use of distributed‑ledger technology to replace
paper invoices and create a common platform to identify transactions already financed by other banks.
32 Toward Inclusive Access to Trade Finance
Figure 20: Technology-Enabled Solutions in Trade Finance
Issue letter of credit
3
Release shipping document
BANK
Confirming Bank 14 Issuing Bank $
Arrange payment
17
Present
Confirm
shipping Request Release
Arrange letter of credit Blockchain-based
13 documents 12 4 and advise its AI and ML Big data to issue 2 shipping 15 16 Payment
payment platform
(e.g., bill of letter of credit document
receipt
lading)
Sales agreement
Exporter 1 Importer
E-commerce Cloud-based invoicing solutions Intelligent OCR
5 Ship goods 17 Goods released
Shipper
Pre-
Freight Freight Export Import
6 shipment 8 11 12
forwarder forwarder terminal terminal
inspector
Internet of Things and
7 10 9 Global Positioning System 13
14
Insurer
Document Export Import Document
Single window Single window
courier customs customs courier
E-documents
Electronic bills
of lading
Physical shipment of goods
Participant Technology Payment
Transfer of documents
AI = artificial intelligence, ML = machine learning, OCR = optical character recognition.
Source: ADB 2019b.
The greater likelihood of women-owned firms using fintech platforms could boost opportunities for
leveraging technology-enabled financial solutions. Fintech platforms have been reconfiguring credit
assessment solutions that depart from the traditional collateral-based requirements of banks. By including
characteristics of women-owned firms and tailoring collateral requirements to include movable assets, which
many women firm-owners possess, fintech platforms are helping clear the path to reduced financial access
barriers among women-owned businesses (DiCaprio, Yao, and Simms 2017). Normalizing gender‑blind
credit assessment practices, which are increasingly common in fintech, can help increase the probability that
women‑owned firms could secure trade financing and eventually narrow the trade finance gap.
Despite this potential, the reach and uptake of technology-enabled solutions have been slow, and usage
remains limited to certain areas. Currently, many responding banks use digital solutions for digital filing and
transmission and electronic signature platform purposes, while firms use them primarily for digital record
keeping and accounting (Figure 21). Ideally, digital finance solutions can help narrow trade finance gaps.
While recognition of fintech is slowly improving, the uptake of digital finance is still low across regions and
firm sizes. Firms that resort to digital finance experience higher average rejection rates for their proposed
transactions with traditional financial institutions. However, among firms familiar with digital finance, the
uptake of peer-to-peer in particular is strong. Peer-to-peer lending had the highest recognition rate and
debt‑based securities had the lowest.
Major Findings and Insights from the Surveys 33
Figure 21: Areas of Operations Where Digital Solutions Are Utilized
a. In bank operations b. In business operations
Digital (or paperless) Digital business records
20%
documents for 42% and financial accounting
filing/transmission Intermediation with trade-related
15%
financing providers like banks
Electronic/digital
28% Digitization of key business
signature platforms 14%
documents for filing/transmission
Fintech platforms E-commerce platform
12%
offering digital trade 18% for multichannel sales
finance solutions Mobile applications
11%
Neither enhanced for enhanced experience
digitalization nor 4%
Did not use any digital process 10%
digitized operations
Identity verification and
9%
Others 4% product traceability/tracking
Analytics for business intelligence 6%
Don’t know/
4%
Not applicable Cloud computing applications 4%
0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25
% %
Source: Kim et al. 2021.
Despite its widely perceived high potential, digitalization remains low among banks in emerging and
developing economies. A persistent gap exists between digitalization’s potential to impact the trade finance
gap and the degree to which banks and firms are knowledgeable and use digital solutions to trade finance.
Addressing the knowledge gap especially among firms is important—in the 2016 survey, 70% of firms
reported being unfamiliar with digital finance; in the 2017 survey, among the few firms familiar with fintech
solutions to finance, only 20% reported having used such platforms (DiCaprio et al. 2016; DiCaprio, Kim,
and Beck 2017). Although banks are very positive about the potential of digitalization to reduce costs, there
is still no evidence that technology is creating more trade finance capacity or reducing the trade finance gap
(DiCaprio, Kim, and Beck 2017; Kim et al. 2019). In the 2021 survey, banks which have yet to hitch on the
digitalization bandwagon remain concerned with the high cost of technology, lack of globally established
rules and standards for digital finance, lack of technological expertise, and lack of interoperability (Figure 22).
Digitizing operations is expensive for any firm or bank, especially given the ever-changing technical
landscape. Unresolved interoperability issues can create problems for clients, supply chains, and financial
institutions. Without established international technical standards, protocols on digitalization, and sufficient
legislation to support digitalized commercial activities, technology will not be able to unleash its potential in
the international finance sphere and have little bearing in closing the trade finance gap.
34 Toward Inclusive Access to Trade Finance
Figure 22: Banks’ Major Areas of Concern Regarding Technology, 2021
High cost of technology adoption 56%
Lack of expertise in technology; it is too complicated
20%
and fast moving; and too many platforms
Insufficient connection/interoperability
18%
of different financing platforms
Technology solutions are currently
9%
not in banks’ agenda
Returns to technology adoption for SMEs
9%
are low due to high costs of credit and capital
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SMEs = small and medium-sized enterprises.
Source: Kim et al. 2021.
Role of Public Sector Support
Responding banks and firms in the survey recognize the need for greater public sector support for
inclusive access to trade finance. Perceptions of the positive role of the multilateral development banks
and export credit agencies have improved over the course of the trade finance surveys. In 2016, only 27%
of bank respondents believed that the trade finance programs of multilateral development banks and
export credit agencies would narrow the trade finance gap. This perception improved greatly to 84% of
bank respondents in the 2019 survey. Firms’ expectations of the role of multilateral development banks
and international organizations are more specific (Figure 23). For improving trade finance access, 25% of
respondents in the 2021 survey were convinced that the intermediating capacity of banks and development
financial institutions could help create SME trade-financing guarantee schemes. This can help smaller
firms overcome the regulatory hurdles and constraints they encounter when seeking financing. Meanwhile,
24% of firms thought that institutions (national/regional/multilateral) could be instrumental in expanding
digital financing platforms to SMEs and women-owned firms.
Multilateral development banks and international organizations have played a role in facilitating
adequate provision of trade finance for underserved markets and players. Their strong financial standing
and credit ratings allow additional funding and guarantees to de-risk transactions for commercial banks and
help to promote trade transactions with a greater focus on SMEs, where private lenders acting alone would
not enter. International support for trade finance has also strengthened during economic downturns and
crises such as the latest COVID-19 pandemic (Box 6).
Major Findings and Insights from the Surveys 35
Figure 23: Firm’s Perceptions on How Regional and International Organizations Can Help Make
Finance Affordable for Small and Medium-Sized Enterprises
Intermediating between banks and development finance institutions
to organize SME trade-financing guarantee schemes to overcome 24.7%
regulatory constraints on SME bank lending
Collaborate with national/regional/multilateral institutions
to expand access to technology-based financing platforms 23.8%
especially for SMEs and women-owned businesses
SME finance education drives and related
20.3%
knowledge-sharing campaigns
Provision of guidelines/business packs
17.2%
for SMEs seeking to digitalize
Assist banks in designing, refining, and updating risk matrix
14.1%
for international transactions of SMEs
0% 5% 10% 15% 20% 25% 30%
SMEs = small and medium-sized enterprises.
Source: ADB staff calculations using 2021 ADB Trade Finance Gaps, Growth, and Jobs Survey—Company.
Box 6: International Support for Trade Finance During the COVID-19 Pandemic
In July 2020, the heads of the World Trade Organization, International Finance Corporation (IFC), European Bank
for Reconstruction and Development (EBRD), Asian Development Bank (ADB), African Development Bank Group,
International Islamic Trade Finance Corporation, and the Inter-American Development Corporation (IDB Invest)
released a joint statement promising to address shortages in trade finance, given the financial market stresses arising
from the coronavirus disease (COVID-19) crisis (ADB 2020). They also urged other institutions to join their ongoing
efforts to provide vital financing support for cross‑border trade. The multilateral development banks have been hard at
work since the onset of the crisis:
1. IFC launched a $6 billion trade and working capital finance initiative, comprising $2 billion from each of the Global
Trade Liquidity Program/Critical Commodities Finance Program and the Working Capital Solutions program and
$2 billion from the existing $5 billion Global Trade Finance Program.
2. ADB ramped up its $2.45 billion trade and supply chain programs as part of the $20 billion comprehensive support
package to assist its developing member countries in their fight against COVID-19.
3. The EBRD launched two Solidarity Packages for a massive increase in trade finance support. In the first 5 months of
2020 alone, the EBRD has provided amplified financing for trade with a record €1.5 billion.
4. The African Development Bank has earmarked up to $1 billion in trade finance liquidity and risk mitigation support
to local banks in all 54 eligible African member countries.
5. The International Islamic Trade Finance Corporation launched a $850 million intervention, as part of the Islamic
Development Bank Group’s $2.3 billion COVID-19 economic recovery program.
6. IDB Invest will increase its guarantee and lending program by $1.5 billion for a total of $3 billion under the
Trade Finance Facilitation Program.
Source: ADB staff report using ADB (2020c).
36 Toward Inclusive Access to Trade Finance
The WTO, multilateral development banks, and the International Chamber of Commerce have also
supported efforts to close knowledge gaps in trade finance. They train more than 1,500 people at local
financial institutions across 60 countries, each year (Auboin and Behar 2020). Firms also count on regional
and international organizations to help SMEs with knowledge-sharing campaigns, digitalization guidelines,
and refining the risk matrix for internationalizing SMEs. National and regional institutions can provide
an enabling environment for private trade finance provision to thrive. This calls for lowering the cost of
technology adoption by providing infrastructure and capacity building and developing common information
systems and platforms for use by borrowers and lenders.
Mitigating Knowledge Gap in Trade Finance
While trade finance metrics have advanced, scope for improvement remains considerable. The data area
still has room for improvement, and the absence of a globally consistent and comprehensive set of trade
statistics lingers. Innovations in the trade finance market also raise the challenge of measuring new financial
instruments routed through digital channels. The COVID-19 pandemic stressed the importance of
timely research for evidence-based policy making to facilitate informed market assessment and adequate
interventions. Although the availability of survey-based data provides practical information on trends, these
only gives a partial glimpse of the trade finance market. Thus, a joint effort at the national and international
levels to create timely, official statistics is imperative. This can offer essential information when the
international market needs immediate support and facilitate early warning analysis of potential liquidity crises.
Further research can help improve trade finance policy design and operation for more inclusiveness.
Since its inception, the ADB trade finance survey has elicited several studies to better understand the trade
finance markets and the implications for inclusive and sustainable growth. Key findings of these studies
suggest that the rejection rate among MSMEs is at least 12 percentage points higher than that for larger
firms (Lee et al. 2022) and the rejection is dependent on risk and profitability of the transaction, shifting
of financial institutions to lower risk markets, and the implementation of screening mechanisms (DiCaprio
and Yao 2017). DiCaprio, Yao, and Simms (2017) also find gender discrimination in access to finance, with
women traders facing greater barriers in seeking financing for their export activities. The role of technology
was highlighted in a recent ADB study (ADB 2019b) to mitigate the trade finance gap by managing process
inefficiency, information asymmetry, and regulatory compliance. Lee, Yang, and Kim (2019) provided
supportive evidence that fintech and reduced information friction can help lower the probability of a good
firm being misclassified as bad.
IV
Conclusions and Way Forward
ADB’s Trade Finance Surveys have shown that the trade finance gap has remained persistently wide in
the last 10 years, with increased vulnerability during crises. MSMEs also tend to have the most difficulty
during crises given their limited financial capacity. Despite increased assistance from national export credit
agencies and multilateral development banks, MSMEs continue to face high rejection rates in trade finance
applications, a problem given the important role these small firms play in employment and inclusive growth.
For banks, due diligence requirements in know-your-customer and anti-money laundering as well as
Basel capital regulations mean higher costs in extending trade finance loans, especially for small borrowers.
Asia and the Pacific has the highest share of trade finance proposals, yet the region’s relatively heavy reliance
on bank-intermediated finance has meant it also has the highest rejections globally, suggesting significant
lost opportunities for trade and development.
Digitalization is taking the center stage in the current and coming era of international trade for its
increasing role in boosting trade and spurring sustainable growth. This can be achieved through more
public–private collaboration and building an enabling environment conducive to technology adoption.
Public intervention can play a bigger role in the inclusive and green trade on which sustainable growth will
be based. Stakeholders in trade finance, including regulators and legislators, should note that this nonbank
financing including fintech, informal channels, and private capital may offer an opportunity to mitigate the
trade finance gaps persistent in bank-intermediated markets. Moreover, the need for sustainability practices
is growing in trade practices, including trade finance, as environmental, social, and governance frameworks
and policies are developed to adhere to sustainability goals.
Without action on supply chains, starting with digitalizing antiquated paper-based systems,
the road toward a greener and more socially responsible global economy is much more complicated.
The COVID-19 pandemic highlighted the vulnerabilities in global supply chains as shortages blamed on
faults in the global manufacturing and delivery system affected the stocks on store shelves, at gas pumps,
or in hospitals and pharmacies. Fixing those faults became a priority, along with the imperative to make
supply chains more resilient and transparent so that they could be used to address key global issues
such as improving environmental, social, and labor standards. As such, the need for collaborative public
intervention in trade and supply chain finance is likely to continue to grow.
Supply chains need to be the focus of any serious climate change alleviation and other globally
important issues need to be addressed through supply chains as well. More than 80% of greenhouse-
gas emissions and more than 90% of the impact of the operations of consumer goods companies on air,
land, water, biodiversity, and geological resources came from their supply chains (Bove and Swartz 2016).
37
38 Toward Inclusive Access to Trade Finance
Well‑managed and more transparent supply chains can contribute to climate change mitigation. Furthermore,
they will also help guarantee that unfair labor practices are weeded out of the global trading system, that
gender equity exists in the workplace, and that poverty reduction is a side effect of growth (Box 7).
Box 7: Environmental, Social, and Governance Considerations in Trade Finance
Non-financial considerations such as environmental, social, and governance (ESG) are increasingly being factored
into decisions across sectors. The momentum toward sustainability in investments has fostered ESG considerations
in the financial sector, both in investment practice and public policy. Many countries have introduced regulations and
codes requiring investors to take account of ESG concerns in their decision-making (United Nations Principles for
Responsible Investment 2019). The Simmons and Simmons (2021) survey, 4.4 out of 5 corporates cited ESG as very
important for their outlook. In light of growing demand, the finance industry is creating more products and services
tailored to Sustainable Development Goal ratings, indices, and funds (Boffo and Patalano 2020). Central banks
have also expressed support for ways to transition financial systems toward greener, low-carbon outcomes.
While ESG working principles are still being worked out—such as ESG definition, data availability, and benchmarking—
corporate responsibility and incorporating ESG by corporates and consumers in transactions is growing, while alternative
asset managers are also adopting more responsible investment practices such as impact management.
ESG in trade finance, currently in an early stage being led by large financial institutions, will become an important
business consideration as sustainable and greener trade is increasingly highlighted. Major global banks such as
Citigroup and HSBC have been engaging in sustainable trade financing (Citigroup 2022, Wragg 2022). J.P. Morgan
works with the European Bank for Reconstruction and Development’s Green Trade Facilitation Programme to better
facilitate trade finance transactions that support trade of green technologies (JP Morgan 2020). International trade
associations and other stakeholders also support ESG in trade finance. For instance, the International Chamber of
Commerce (ICC) has published due diligence guidelines for its member firms on sustainable trade (ICC 2019).
The global initiative led by the ICC toward an “interoperability layer” on common standards and platforms for trade
finance stakeholders also notes support for and monitoring of sustainability goals (McKinsey & Company 2021).
Trade finance products are adding new dimensions, while agendas of financial institutions, export credit agencies, and
trade organizations are evolving to incorporate sustainability goals.
Sources: ADB staff report using Boffo and Patalano 2020; Citigroup 2022; ICC 2019; JP Morgan 2020; McKinsey & Company 2021;
Simmons and Simmons 2021; United Nations Principles for Responsible Investment 2019; and Wragg 2022.
Understanding how supply chains work is vital in mapping the issues connected to them.
According to Villena and Gioia (2020), many supply chains stretch to small suppliers who “often do not
have sustainability expertise or resources, and they may be unaware of accepted social and environmental
practices and regulations. They are also frequently located in countries where such regulations are
nonexistent, lax, or not enforced at all.” The study noted that the big multinational companies ultimately at
the end of those chains may have strict practices in place to adhere to environmental and social standards.
But “they frequently don’t even know who their lower-tier suppliers are, let alone where they’re located or
what capabilities they have (or don’t have).”
Digitalization is the first step to improve transparency in supply chains. By shifting trade and supply
chains into the digital world, away from the ponderous process of paper documentation that exists now,
the trade ecosystem can be better measured, monitored, and regulated. The lack of standards has created
fragmentation and inefficiencies in trade as information is difficult and cumbersome to exchange digitally,
Conclusions and Way Forward 39
and the system remains heavily reliant on relaying paper between parties involved in moving goods and
services around the world. Industry and regulators need to agree on common systems and practices and
governments need to upgrade or alter laws that now insist that trade deals be tracked by paper trails.
Ad tools such as distributed ledger technology for transactions and QR codes rich in information about
traded products need to be normalized (Figure 24).
Figure 24: Three Initiatives to Build an Environment Conducive to Technology Adoption
Global environment conducive to technology adoption
Support Digital Standards Global Adoption of the Implement Legislation and
for Trade Initiative Legal Entity Identifier Rules in Digital Trade
• Identify and develop digital
• Verify who’s who, who owns • Global laws in place to support
standards
whom, and who owns what adoption of digital trade
• Develop digital standards
• Enhanced transparency on • Important roles of UNCITRAL
• Create a scorecard to AML/KYC concerns and ICC Banking Commission
benchmark industries
AML = anti-money-laundering, ICC = International Chamber of Commerce, KYC = know-your-customer, UNCITRAL = United Nations
Commission on International Trade Law.
Source: ADB (2019a).
Along with the ICC and the Government of Singapore, the Trade and Supply Chain Finance Program
established the Digital Standards Initiative to create digital standards and protocols. The initiative
will develop standards and protocols to drive interoperability between fintech platforms and between
component parts of the trade ecosystem: exporters, shippers, ports, customs, warehouses, banks/
insurance, and importers. Interoperability/connections between supply chain stakeholders will also
lead to greater transparency, enabling “tracking and tracing” of component inputs throughout the
supply chain. This will underpin efforts to ensure supply chains are green, resilient, respect labor standards,
and are socially responsible. The Digital Standards Initiative is part of Trade and Supply Chain Finance
Program’s overall digital strategy, which included the first digital trade finance transaction by a multilateral
development bank, which was successfully undertaken in 2020, and multipronged efforts to educate and
assist governments, regulators, and other financial authorities on legislative upgrades that would allow for
digital trade (ADB 2021b).
Another key component of trade digitalization is the global adoption of the Legal Entity Identifier
system. Managed by the Global Legal Entity Identifier Foundation with the support of the G20, the
Financial Stability Board, and many regulators around the world, the Legal Entity Identifier is a harmonized
identity system that provides a unique identifier via a 20-character alphanumeric code for each business
registered and helps support accurate information on company ownership. This, in turn, encourages market
integrity and risk management, and addresses KYC/AML concerns for financial providers and regulators.
40 Toward Inclusive Access to Trade Finance
As of May 2022, more than 2 million businesses globally had acquired a legal entity identifier (Global Legal
Entity Identifier Foundation website). Global adoption of a Legal Entity Identifier can be supported by
more affordable costs for adoption, marketing and information campaigns, and most of all, by legislations
requiring business entities to use Legal Entity Identifiers (Beck, Hyde, and Laysa-See 2019).
Legislation reform is also needed to enable UN Model Laws on the electronic transfer of records.
The United Nations Commission on International Trade Law (UNCITRAL) created various Model Laws on
the electronic transfer of records, including the Model Law on Electronic Transferable Records, Model Law
on Electronic Commerce Laws, and Model Laws on Electronic Signatures. UNCITRAL developed these
Model Laws as legislative guides to enable the legal acceptance of digital transfer of various documentation
and enhance speed, efficiency, and transparency in digital trade transactions.8
Long-term investment in infrastructure is also needed to sustainably support short-term trade finance.
As the dynamics of trade finance evolves, it must continuously be supported by a complex network of
cross-border finance infrastructure, a dependence relationship that is distinct to this asset class and
economic activity. COVID-19 provided strong impetus for the acceleration of digitalized trade and trade
finance and will likely produce hybrid trade finance products, combining traditional mechanisms with
more contemporary innovations (Starnes and Nana 2021). As this happens, trade finance players and
stakeholders must secure the growth of corresponding infrastructure to allow future evolutions in trade
finance to reduce the trade finance gap, amid persistent challenges. Moving forward, the reduction in the
trade finance gap, especially for SMEs, could also help narrow the productivity gap between SMEs and larger
companies, and potentially add $15 trillion in value added to global GDP (Castaneda-Navarete et al. 2021).
8
As of May 2022, the following countries and jurisdictions have adopted legislation based on the Model Law on Electronic
Transferable Records: Bahrain, Belize, Kiribati, Papua New Guinea, Paraguay, Singapore, United Arab Emirates-Abu Dhabi
Global Market (UNCITRAL website). Similarly, the United Kingdom has published draft legislation on allowing legal recognition
of electronic versions of trade documents (Psarska 2022).
Appendix
Questionnaires
Bank Survey, 2021
1. Please record your response in the box provided.
Bank Name (required)
Country (required)
Email Address (preferred but optional)
Phone Number (optional)
ɂɂ TRADE FINANCE GAPS
2. What was the total (estimated) US$ value of all trade finance applications—meaning all requests
for trade finance support from clients and non-clients—your bank received in 2020 and 2019?
(Please record your response in the space below. Enter whole numbers only by rounding up or down and
do not use commas or decimal places. If you are unsure of the number, provide a best estimate.)
In 2020: US$______________ In 2019: US$______________
Note: This US$ value should include requests for trade finance your bank did and did not support.
And please include all (documentary and open account) forms of trade finance supporting cross-border
trade: all forms of letters of credit (confirming and issuing), guarantees, supply chain finance, discounting
export receivables, pre- and post-export finance.
3. What was the total (estimated) US$ value of trade finance applications rejected in 2020 and 2019? In other
words, of the total US$ value of trade finance transactions your bank received in 2020 (this information was
provided in previous question #2) how much did your bank reject/not support? (Please enter whole numbers
only and do not enter commas or decimal places. If you are unsure, provide a best estimate.)
In 2020: US$______________ In 2019: US$______________
4. Provide a (estimated) percentage breakdown of the total US$ value of trade finance applications your
bank received in 2020 and 2019 by client type.
41
42 Appendix
(Please apply whatever definition for SME and other client types are used by your bank. Complete the
table below by entering the percentage for each client type. Enter whole numbers only and do not enter
commas or decimal places. If you are unsure of the percentages, provide best estimates.)
Client type % Received in 2020 % Received in 2019
Multinational
Large corporations and Mid-cap
Small and medium-sized businesses (SMEs)
Total = 100% Total = 100%
5. What (estimated) percentage of trade finance applications was rejected in 2020 and 2019 (based off
total US$ rejected value provided under question #3 above) broken down by client type?
(Please complete the table below by entering the percentage in the boxes provided. Please enter whole
numbers only and do not enter commas or decimal places. If you are unsure, please provide best
estimates.)
By Client type (based on responses from previous
question if client type greater than zero) % Rejected in 2020 % Rejected in 2019
Multinational
Large Corporate and Mid-cap
Small and medium-sized businesses (SMEs)
Total = 100% Total = 100%
6. Please provide a (estimated) percentage break down by region of trade finance applications your bank
received in 2020 and 2019.
Region % Received in 2020 % Received in 2019
Central Asia
East Asia
South Asia
Southeast Asia
Oceania
The Pacific
Africa
Europe
Latin America and the Caribbean
Middle East
North America
Other (please specify) % Received % Received
Appendix 43
7. Please provide the (estimated) percentage break down by region of trade finance applications your bank
rejected in 2020 and 2019.
By Region
(based on responses from previous question
if region greater than zero) % Rejected in 2020 % Rejected in 2019
Central Asia
East Asia
South Asia
Southeast Asia
Oceania
The Pacific
Africa
Europe
Latin America and the Caribbean
Middle East
North America
Pacific
Middle East and North Africa
Sub-Saharan Africa
Other (please specify) Total = 100% Total = 100%
8. Of the total US$ value of trade finance applications received in 2020 and 2019, what percentage was
rejected for each of the following reasons?
Rejected Applications % Rejected in 2020 % Rejected in 2019
COVID-19-related concerns affecting companies, banks, or countries.
Application was completely unsuitable for support.
Application was poorly presented and had insufficient information.
Application raised serious KYC concerns.
Application lacked additional collateral.
Application was not profitable enough to process.
Application was not profitable to process due to regulatory capital constraints.
Other reasons (please specify in the space below)
Total = 100% Total = 100%
44 Appendix
9. To what extent do you agree/disagree that the following are barriers to financial institutions servicing
the trade finance needs of the global market? Please select only one box in each row.
Don’t know/
Strongly agree Strongly Disagree Not sure
5 4 3 2 1
General economic uncertainty due to the COVID-19 pandemic
Specific concerns about companies’ ability to perform during
COVID-19
COVID-19-related concerns about bank risk
High transaction costs or low fee income
Low company/obligor credit rating
Issuing bank’s low credit ratings
Low credit ratings of company/obligor’s country
AML/KYC requirements
Basel capital regulatory requirements
Bank staff’s lack of familiarity with products
Clients’ lack of familiarity with products
Lack of dollar liquidity
Other barriers: please specify
10. Rank (from 1 to 9) the most frequently used Supply Chain Finance techniques:
• Receivables purchase: Receivables discounting
• Receivables purchase: Forfaiting
• Receivables purchase: Factoring
• Receivables purchase: Payables finance
• Loan or Advance-based: Loan or advance against receivables
• Loan or Advance-based: Distributor finance
• Loan of Advance-based: Loan or advance against inventory
• Loan of Advance-based: Pre-shipment Finance
• Bank Payment Obligation
• None
Appendix 45
ɂɂ COVID-19 AND GOVERNMENT SUPPORT
11. Does your bank anticipate an increase in trade finance defaults due to COVID-19?
• Yes
• No
• Don’t know
12. Has your bank reduced limits available to support trade as a result of the pandemic?
• Yes
• No
• Don’t know
13. Has your bank reduced capital availability to support trade as a result of the pandemic?
• Yes
• No
• Don’t know
14. Since the pandemic, has your bank introduced measures to support SME clients affected
by COVID-19?
• Increased capital availability and increased limits to support SME transactions
• Developed new COVID-19-related products for SME exporters and importers
• Facilitated easier, cheaper, quicker KYC, AML, and compliance checks on SMEs
• Reduced the rejection rate of proposals coming from SMEs
• Debt moratorium on repayments
• We did not introduce measures to support SME clients affected by COVID-19
• Others (please specify): ___________
• Don’t know/Not applicable
15. Since the pandemic, has your bank enhanced digitalization or enhanced plans to digitize operations?
• Digital (or paperless) documents for filing/transmission
• Electronic/digital signature platforms
• Fintech platforms offering digital trade finance solutions
• We neither enhanced digitalization nor digitized operations
• Others (please specify)
• Don’t know/Not applicable
46 Appendix
16. To what extent do you agree/disagree that the COVID-19 pandemic did:
Strongly Strongly Don’t know/
agree Disagree Not sure
5 4 3 2 1
Encourage your bank to dedicate fewer resources/capital to support
cross-border trade and more to domestic transactions
Reduce the amount of trade finance credit made available by your bank
to new clients
Reduce the amount of trade finance credit made available by your bank
to current clients
Reduce trade finance funds available for SMEs and not take on new SME
clients involved in cross-border trade
ɂɂ PROSPECT OF TRADE FINANCE MARKET
17. Do you believe the pandemic worsened the shortage of trade finance support to companies and banks
in the market?
(Please select one only).
• Yes
• No
• Don’t know
18. Do you agree that providing more trade finance is required to boost trade and trade-led growth toward
global economic recovery?
Strongly agree Strongly Disagree Don’t know/Not sure
5 4 3 2 1
ɂɂ DIGITALIZATION AND TRADE FINANCE
19. Do you agree that the COVID-19 pandemic has accelerated/will accelerate the availability of digital
channels for trade finance?
• Yes
• No
• Don’t know
Appendix 47
20. To what extent do you agree/disagree that technology such as fintech and digitalization will
enhance your bank’s engagement with SMEs in the following ways?
Strongly Strongly Don’t know/
agree Disagree Not sure
Technology will enable: 5 4 3 2 1
Evolution of new products for SME exporters and importers
Facilitate easier, cheaper, quicker KYC, AML and compliance checks on SMEs
Deepen the data mapping of SMEs for better client profiling and risk assessment
Reduce the rejection rate of proposals coming from SMEs
Others (please specify)
21. Is your bank gearing up to service more SMEs through technology?
• Yes
• No
• Don’t know
22. If “No”, please rank from strongest (1) to weakest (7) reason why your bank is not positioning to
maximize potential to service more SMEs through technology:
_____ High cost of technology adoption
_____ Lack of expertise in technology because it is too complicated and fast moving;
and too many platforms
_____ Lack of global, established standards, laws, and rules for digital finance
_____ Insufficient connection/interoperability of different financing platforms
_____ No clear evidence of digitalization benefits given current operations
_____ Returns to technology adoption for SMEs are low due to high costs of credit and capital
_____ Technology solutions are not in our agenda currently
Other reasons: please specify ____________________
23. Please provide any other feedback/insights below that you believe may assist with this survey:
48 Appendix
Company, 2021
1. Where is your company headquarters located? (please choose country)
2. What is your company’s primary sector of activity?
[ ] Agriculture, forestry, and fisheries
[ ] Manufacturing
[ ] Transportation and warehousing
[ ] Power and energy (e.g., electricity and gas)
[ ] Construction
[ ] Wholesale and retail trade
[ ] Finance, insurance, and real estate
[ ] Information and communications technology
[ ] Accommodation and food services
[ ] Other services, please specify ____________________
3. How long has your company been doing business?
[ ] 0–5 years
[ ] 6–10 years
[ ] 11–15 years
[ ] 16–30 years
[ ] more than 30 years
4. Approximately how many full-time employees did your company have?
Number of full-time employees In 2020 In 2019
1–9
10–99
100–199
200–300
More than 300
5. Is the founder/owner or any of the founders/owners of your company a woman/women?
[ ] Yes
[ ] No
[ ] Not sure/Don’t know
Appendix 49
6. Approximately what percentage of total full-time employees were women?
Percentage of full-time women employees In 2020 In 2019
1%–10%
11%–30%
31%–50%
51%–80%
More than 80%
7. Is your company foreign-owned? Choose only one.
[ ] No
[ ] Yes (less than 25%)
[ ] Yes (25%–50%)
[ ] Yes (greater than 50%)
8. What is (was) your company’s operational status?
Current status At the end of 2020 At the end of 2019
Fully operational
Partly operational
Temporarily closed
Permanently closed
9. Are you a direct exporter?*
_____ Yes
_____ No, but our company supplies/sells goods/services to a direct exporter.
_____ No
* A direct exporter is a firm that sells its products directly to the international market, either through
intermediaries, such as foreign distributors or foreign sales representatives, or directly to the end-user.
10. How much were the annual sales of your company in 2019 and 2020?
In 2020: US$______________ In 2019: US$______________
50 Appendix
11. Please identify your company’s three main export markets in 2019 and 2020.
Region In 2020 In 2019
Central Asia
East Asia
South Asia
Southeast Asia
Oceania
The Pacific
Africa
Europe
Latin America and the Caribbean
Middle East
North America
Other (please specify)
Note: Your inputs to the following questions are critical for this survey. To the best of your ability, please
provide estimates if exact figures are not available.
Trade Finance
Trade finance refers to loans, guarantees, insurance, factoring, forfaiting, receivables finance, or supply
chain finance, and other forms of finance and risk mitigation provided by financial institutions for import and
export transactions. This includes all forms of pre-shipment, post-shipment, letters of credit, and any other
trade-related financing provided by financial institutions.
12. How much trade financing did your company apply for to support your import/export activities?
In 2020: US$______________ In 2019: US$______________
13. Approximately what percentage of the trade finance amount your company applied for was rejected?
Percentage of rejection In 2020 In 2019
1%–10%
11%–20%
21%–30%
31%–40%
41%–50%
More than 50%
Appendix 51
14. Why were the applications for trade finance rejected? (Pick the top three reasons.)
Reason for rejection In 2020 In 2019
Insufficient collateral or guarantee
Inability to fulfill documentation requirements
No previous transactions or lack of business relationship with financial institution
Insufficient credit and/or performance history to make credible risk assessment
My country has a “high risk” rating
Bank’s anti-money laundering/know-your-client requirements
The bank’s interest rate and fees were too high
Others, please specify ______________________
15. When your company’s trade financing applications were rejected, what alternative funding sources
did you seek and what was generally the outcome of your efforts?
Outcome of efforts to seek alternative financing sources In 2020 In 2019
We used own funds or retained profits (go to Q17)
We used formal alternative financing* successfully (go to Q17)
We used informal financing** successfully (go to Q16)
We used digital finance successfully (go to Q17)
We found formal alternative financing* but opted not to use it (go to Q17)
We found informal financing** but opted not to use it (go to Q17)
We found digital finance*** but opted not to use it (go to Q17)
We were unable to find appropriate alternative financing (go to Q17)
We did not seek alternative funding sources (go to Q17)
* Formal financing or formal alternative financing refers to formal financial services provided by other financial institutions
chartered by the government and subject to banking regulations and supervision.
** Informal financing refers to financial services provided outside the legal/formal system and usually involves exchanging cash in
the present for the promise of cash in the future, such as financing from informal savings and credit groups and moneylenders.
*** Digital finance refers to financial services enabled and driven by technology (i.e., artificial intelligence, social networks,
machine learning, mobile applications, distributed ledger technology, cloud computing, and big data analytics) such as online
banking, online payments, online transfers, and mobile lending.
16. If you had sought informal financial sources, which of the following sources of informal finance
did you seek out?
Sources of informal financing sought In 2020 In 2019
Informal savings and credit groups
Moneylenders
Business partners
Family members and relatives
Diaspora associations, friends and neighbors
Others, please specify
52 Appendix
17. How do you think the global pandemic impacted your company’s demand for trade finance in 2020
relative to 2019?
[ ] It increased our demand for trade finance
[ ] It decreased our demand for trade finance
[ ] It didn’t change our demand for trade finance
[ ] Not sure/Do not know
18. In which area of your business operations do you use any digital process? Select all that apply.
[ ] Intermediation with trade-related financing providers like banks
[ ] Digital business records and financial accounting
[ ] Digitization of key business documents for filing/transmission
[ ] Identity verification and product traceability/tracking
[ ] E-commerce platform for multichannel sales
[ ] Mobile applications for enhanced client experience
[ ] Cloud computing applications
[ ] Analytics for business intelligence
[ ] We do not use any digital process
[ ] Others, please specify ______________________
19. Do you agree that the COVID-19 pandemic has accelerated/will accelerate the use of
digital processes?
Strongly agree Strongly Disagree Don’t know/Not sure
5 4 3 2 1
20. Have you used or considered any of the following financing instruments typically available on
digital or web-based platforms as a way of obtaining trade finance?
Used Considered but not used Not aware of this financing option
Crowdfunding a
[ ] [ ] [ ]
Peer-to-peer lendingb [ ] [ ] [ ]
Invoice financingc [ ] [ ] [ ]
Purchase order advance d
[ ] [ ] [ ]
Debt-based securitiese [ ] [ ] [ ]
a
Crowdfunding is a method of raising capital by tapping a collective network of friends, family members, acquaintances, and investors—
often by using social media or crowdfunding platforms.
b
Peer-to-peer lending is a method of lending to individuals or businesses through an online platform that matches lenders with borrowers.
c
Invoice financing: firms sell their invoices at a discount to a pool of individual or institutional investors in order to receive funds
immediately rather than waiting for invoices to be paid.
d
Purchase order advances are short-term loans (less than 12 months) against orders and contracts from foreign buyers
e
Debt-based securities: Lenders receive a non–collateralized debt obligation, typically paid back over an extended period. This is similar
in structure to purchasing a bond, but with different rights and obligations.
Appendix 53
21. Why did you decide to use or consider digital financing platforms for trade finance (as specified in
the previous question)? Choose all that apply.
[ ] The available platforms are easier and quicker to access
[ ] The available platforms are cheaper to use
[ ] The service is just the same (if not better) as non-digital platforms
[ ] The COVID-19 pandemic made it more practical to use digital finance channels
[ ] Others, please specify ______________________
22. If you have not used any digital or web-based financing platforms, what were the main reasons?
Select all that apply.
[ ] Insufficient information on digital financing platforms
[ ] Lack of expertise in technology; it is too complicated and fast moving; and too many platforms
[ ] Unreliable telecommunications infrastructure makes Internet reception unstable
[ ] Considerable documentary requirements, same as banks
[ ] Still costly to use
[ ] We were able to be funded by non-digital sources after all
[ ] Not applicable
[ ] Others, please specify ______________________
23. In 2020, what kind of COVID-19-related support did you receive from government/bank to keep
your business operational? Select all that apply.
[ ] Funding to pay business fixed costs and avoid redundancies for most employees
[ ] Moratoriums on debt repayment or interest payment most of the time
[ ] Government funding and/or guarantees to our banks kept open channels for trade financing and
working capital at affordable rates
[ ] Grants or low cost subsidized loans to re-start business or to pivot to new markets
[ ] We were ineligible for government support
[ ] We did not seek government support because we didn’t need it
[ ] There was no support available or we do not know about available support.
24. Which of the following factors do you think will be major barriers to your business over the next
one year? Select all that apply.
[ ] Disruption of production/supply chain
[ ] Lack of government support or insufficient stimulus measures
[ ] Decline in revenue due to weak demand
[ ] Lack of access to finance
[ ] Lack of knowledge and skilled staff
[ ] Others, please specify ______________________
54 Appendix
25. When do you think your company revenues will return to pre-pandemic level?
[ ] Revenues are already at or above the pre-pandemic level
[ ] Second half of 2021
[ ] First half of 2022
[ ] Second half of 2022
[ ] 2023 or later
[ ] Don’t know/Hard to predict/Never
26. In what areas do you think regional/international organizations can contribute to making financing
affordable and accessible for SMEs?
_____ SME finance education drives and related knowledge-sharing campaigns
_____ Provision of guidelines/business packs for companies seeking to digitalize
_____ Collaborate with national/regional/multilateral institutions to expand access to
technology‑based financing platforms, especially for SMEs and female-owned business
_____ Assist banks in designing, refining, and updating risk matrix for international trade transactions
of SMEs
_____ Intermediating between banks and development finance institutions to organize SME
trade‑financing guarantee schemes to overcome regulatory constraints on bank SME lending
_____ Others, please specify ______________________
27. From which of these channels did your company receive this survey?
[ ] Industry associations
[ ] International Trade Centre (ITC)
[ ] Centre for the Promotion of Imports from developing countries (CBI)
[ ] Pacific Trade Invest (PTI)
[ ] Banks
[ ] Others, please specify ______________________
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Toward Inclusive Access to Trade Finance
Lessons from the Trade Finance Gaps, Growth, and Jobs Survey
A persistently large trade finance gap is an ongoing global challenge, particularly for small and medium‑sized
enterprises, which continue to face significant barriers to access financing. This report reflects on the
Trade Finance Gaps, Growth, and Jobs Survey conducted by the Asian Development Bank since 2012.
It provides insights on trade finance trends, analysis, and lessons from the past 10 years and identifies
what needs to happen to make access to trade finance more inclusive. The report discusses the rapid
digitalization in trade and trade finance markets and advocates for increased international cooperation to
enable the full benefits of digitization to be realized.
About the Asian Development Bank
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific,
while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members
—49 from the region. Its main instruments for helping its developing member countries are policy dialogue,
loans, equity investments, guarantees, grants, and technical assistance.
Asian Development Bank
6 ADB Avenue, Mandaluyong City
1550 Metro Manila, Philippines
www.adb.org
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