How tech can help businesses get the financing they need – as trade finance gap widens
A new report by the Asian Development Bank (ADB) has found that the global trade finance gap has widened to the highest on record to $2.5tn in 2022. This gap highlights the unapproved demand for finance to facilitate international commerce.
The report, titled “2023 Trade Finance Gaps, Growth, and Jobs Survey,” found that the gap is being driven by a number of macroeconomic factors, including the Covid-19 pandemic, rising interest rates, and ongoing geopolitical tensions.
The report also found that businesses of all sizes, including large organisations, are being affected by the trade finance gap. They cite a lack of collateral, insufficient credit history, and unfavourable market conditions as the main reasons their applications for trade finance were rejected.
However, tech-enabled solutions, partnered with traditional banks and lenders, combined with deep financial services expertise are offering hope for business, explains Maurice Benisty, chief commercial officer at Demica, a supply chain finance platform.
“In times like these, credit gets harder for businesses to come by,” Maurice explains. “The top reason cited for rejected trade finance applications was insufficient collateral or guarantee. This is where supply chain finance can help.”
Supply chain finance and specifically payables finance is a type of financing that provides companies with access to early payment for the goods or services they sell, using financial institutions to fund these confirmed payment obligations from their customers. Payables Finance has grown rapidly into an industry with estimated outstandings of more than $500bn globally, growing in excess of 25% per annum.
“Supply chain finance can help businesses, to get the financing they need to grow their businesses and create jobs,” adds Maurice. “Technology is enabling the solution to push deeper into the supply chain to smaller suppliers which is helping to address the global trade finance gap.”
The ADB report found that the use of supply chain finance is increasing, but there is still a long way to go to close the global trade finance gap. The report called for increased collaboration between governments, banks, and technology providers to scale up the use of supply chain finance and other innovative financing solutions.