The global trade finance gap grew to an all-time high of US$1.7 trillion in 2020, a 15 per cent increase from two years earlier, as the private sector retrenched and the pandemic heightened economic and financial uncertainties and devastated global trade, according to the latest Trade Finance Gaps, Growth and Jobs Survey released by the Asian Development Bank (ADB).

The bank says the retrenchment of the private sector meant it was called upon to provide significantly more loans and guarantees on L/Cs and other instruments during the year.

Impact on SMEs and women

The survey showed that small- and medium-sized enterprises (SMEs) were hardest hit as trade finance dried up during the spread of the coronavirus pandemic, accounting for 40 per cent of rejected trade finance requests.

Women-owned SMEs found it particularly difficult to get finance, with a reported 70 per cent of their applications totally or partially rejected. The gap, which represents the difference between requests and approvals for financing to support imports and exports, was US$1.5 trillion in 2018.

Barriers to trade finance

The survey is a widely recognised barometer of trade finance health. The seventh survey includes 79 banks and 469 firms, covering all regions of the world.

Weaker balance sheets and macroeconomic uncertainty during the pandemic enlarged the gap. Regulations designed to curb money laundering and fraud continued to inadvertently pose obstacles to servicing trade finance needs.

Banks took extra measures to support SMEs, with 27 per cent reporting that they offered debt moratoriums and 23 per cent increasing capital availability levels. More than 40 per cent of firms expected their revenues to return to pre-pandemic levels in 2022.

Retrenching private sector

Transaction numbers for the ADB's Trade and Supply Chain Finance Programme (TSCFP), which provides loans and guarantees on L/Cs, guarantees, discounting, trade loans and other instruments to more than 200 partner banks, increased by 50 per cent in 2020 to fill enlarged market gaps left by a retrenching private sector.

In 2021, ADB expects the TSCFP will support over 7,000 transactions valued at over US$6 billion in markets where the private sector has most trouble operating.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.