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The global trade finance gap has reached $1.6 trillion ($692 billion of which is accounted for by Asia, including India and China), according to a brief released by the Asian Development Bank (ADB) today, with small and medium-sized enterprises (SMEs) hit the hardest.
In the bank’s fourth annual survey, ‘2016 Trade Finance Gaps, Growths, and Job Surveys’, ADB quantifies market gaps for trade finance and explores their impact on growth and jobs, through a survey of 337 banks in 114 countries and 791 firms in 96 countries.
“The growth of the trade finance gap in 2015 continues to be a drag on trade, and small and medium-sized enterprises are the most affected,” says Steven Beck, head of ADB’s trade finance programme. Globally, 57% of trade finance requests by SMEs are rejected, against just 10% for multinational companies. High rejection rates lead many firms to turn to inefficient informal financing.
Beck adds:"The survey shows that both globally and nationally, regulators and policymakers should increase support for trade finance through smarter banking regulations, more transparent and comprehensive credit ratings systems, and capacity building for local banks.”
The report also reveals that trade finance gaps persist partly due to the cost and complexity of compliance with banking regulations, with 90% of surveyed banks citing AML and KYC requirements as impediments to their ability to expand trade finance, especially for small businesses. Basel III banking regulations, which set liquidity requirements for bank finance, are also cited by 77% of respondents as a major barrier to finance new trade.
The full report can be accessed here.