Trade finance shortages remain a barrier to developing world economic growth, as the gap between the perception and actual level of transaction risk widens. Tackling this is an ongoing priority, says the WTO’s Marc Auboin
As global correspondent banks reassess their emerging market strategies, smaller countries with lower business potential have become increasingly vulnerable.
Before the global financial crisis, there were around a million correspondent banking lines in place. However, postcrisis, one in five has disappeared, leaving 800,000, with most of the relationships that were terminated affecting developing countries; particularly the poorest.
Lack of access to trade finance is therefore curtailing the trade opportunities of small businesses in developing countries in particular, according to Trade Finance and the Compliance Challenge: A Showcase of International Cooperation; a co-publication launched by the World Trade Organization (WTO) and the International Finance Corporation on 3 July 2019 at the Global Review of Aid for Trade.1
Furthermore, given that up to 80% of trade is financed by credit or credit insurance, a diminution in trade finance represents a significant barrier to activity, particularly in developing economies.
The publication explores the reasons for the growing reluctance of the global financial sector to engage in this form of financing and presents case studies of capacity-building programmes organised by the international community to address the issue. Its findings are based on feedback from more than 300 professionals who took part in the seminars described in the cases studies, which took place between the end of 2018 and early 2019. By the end of 2019, the programme of on-site seminars and online training for multilateral development banks reached close to 1,500 participants in priority countries, with the human and/or financial resources for the courses provided by the WTO, the International Monetary Fund and International Chamber of Commerce.