The Eastern and Southern African Trade and Development Bank (TDB) has contributed to the World Trade Organization’s new Financial Inclusion in Trade Roadmap, which aims to increase MSMEs’ access to trade finance.
The plan, which was recently released for public comment, identifies five important areas where coordinated action can have a major impact. Importantly, the Roadmap attempts to expedite the pace of change by establishing a comprehensive framework for public-private collaboration.
MSMEs account for around 90% of enterprises globally, but just 23% of trade finance applications in 2020. Despite their modest number, these smaller enterprises accounted for 40% of all denied trade credit applications. The trade finance gap, or the imbalance between demand and supply for trade financing, is fast expanding, rising from an expected USD 1.5 trillion in 2018 to USD 2 trillion in 2022, and shows no signs of stopping.
“Difficulty accessing finance means MSMEs are greatly under-represented in global trade,” stated Michael Vrontamitis, Deputy Chair of the World Trade Board. Many outstanding initiatives for increasing financial inclusion have been implemented, but to expedite progress, we must collectively apply the knowledge and technology at our disposal. In a results-driven approach, our framework integrates various stakeholders around a similar goal, with clear lines of accountability. We now invite the industry to submit feedback that will help develop the Roadmap, and then to collaborate with us on implementation.”
TDB has increased its trade financing operations, which now account for more than two-thirds of its portfolio. TDB not only provides trade finance to address current food and energy security challenges, but it also finances specific transactions aimed at SMEs and works to support the region’s financial services infrastructure by extending financing to local banks that specifically serve importing and exporting SMEs.
Furthermore, the TDB Group’s Trade and Development Fund (TDF) has a SME Program that offers alternative financing alternatives and technical assistance to customers in TDB Group member countries, with a special emphasis on previously underserved populations such as MSMEs, women, and youth.
TDB CEO Michael Awori stated, “We are pleased to participate in this important platform for collaboration with industry peers and partners to work on solutions aimed at reducing the trade finance gap, particularly for MSMEs.” As we all know, MSMEs are the backbone of our economies, and as such, we will only be able to achieve triple bottom line growth on a global and regional scale if conditions are conducive to their expansion, including trade.”
“When it comes to the gaps in the provision of trade finance, no commercial bank or multilateral institution can address these [challenges] on their own,” writes Pascal Lamy, Coordinator of the Jacques Delors Think Tanks, President of the Paris Peace Forum, and Strategic Advisor to the World Trade Board, in the Roadmap’s foreword. To deliver their expertise, they must discover new methods to collaborate with one another, with governments, and with other innovative organizations.”