Letters of credit (L/Cs) may be included in a strategic initiative to tackle the growing trade finance gap launched by the International Chamber of Commerce (ICC) and one of the world's largest fintechs, Finastra.

Both organisations are orchestrating an ecosystem and exploring the development of a financing marketplace that will provide micro-, small-, and medium-sized enterprises (MSMEs) with access to a broader set of alternative finance resources in order to help keep the global economy moving forward.

Matching supply and demandThe ICC Tradecomm marketplace, powered by Finastra, aims reduce trade finance barriers for MSMEs and enable all parties to benefit from improvements in matching supply and demand.

ICC and Finastra plan a series of pilots across select markets before launching the platform globally.

L/Cs contemplated

During the initial launch period, bank and non-bank financers will be given the opportunity to transact on invoices from MSME suppliers from select marketplaces.

Subsequent versions of ICC Tradecomm may include other trade documents, such as L/Cs, bills of lading, and other bank-syndicated products, in a move towards creating seamless documentary flow.

Growing gap

There is a large and growing trade finance gap representing a mismatch between demand for and supply of trade financing, estimated at US$1.5 trillion pre-coronavirus pandemic and potentially reaching US$2.5 trillion by 2025 according to a statement issued by Finastra.

It says that coupled with the effects of the pandemic, MSMEs desperately need short-term liquidity and access to international trade to survive the ongoing economic crisis.

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