Commercial letters of credit (L/Cs) are expected to lead growth in the global trade finance market over the next decade according to forecasts prepared by Allied Market Research (AMR).

It says the global trade finance industry generated US$44 billion in 2020, and is estimated to reach US$90 billion by 2030, representing an annual growth rate of 7.4 per cent from 2021 to 2030.

The report's scope is outlined in its lengthy title: Trade Finance Market by Product Type (Commercial Letters of Credit (L/Cs), Standby Letters of Credit (L/Cs), Guarantees, and Others), Provider (Banks, Trade Finance Houses, and Others), Application (Domestic and International), and End User (Traders, Importers, and Exporters): Global Opportunity Analysis and Industry Forecast, 2021-2030.

Commercial L/C growth

Based on product type, the commercial L/C segment contributed to the highest share the global trade finance market in 2020, accounting for more than two-fifths of the global trade finance market according to AMR, which expects it will continue its leadership status during the forecast period.

The researchers say this is due to an increase in global trade, different laws in each country, language barriers, and difficulties parties have knowing each other sufficiently well.

Drivers, restraints, and opportunities

The report says growth drivers in the global trade finance market include an increased need for safety and security of trading activities, a surge in adoption by small- medium-sized enterprises in developing countries and new trade agreements.

Restraining factors include an expected increase in trade wars and the high cost of implementation.

Integration of blockchain in trade finance is expected to create new opportunities in the coming years the report concludes.

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