Lack of trade finance a major obstacle for SMEs – WTO

Lack of access to trade has been identified as a major obstacle impeding the growth of Small and Medium Enterprises (SMEs) both in developing and developed countries.
Roberto Azevêdo director-general of the World Trade Organisation stated that there is need to address existing gaps in the provision of trade finance, especially for Small and medium-sized enterprises (SMEs).

“Appropriate levels of trade finance are fundamental for a healthy trading system. Yet, access to trade finance continues to be an issue for many traders across the globe — in developing and developed countries alike. And, of course, smaller businesses face the greatest hurdles.

“I highlighted the gaps in trade finance provision at the Third United Nations Conference for Financing for Development in Addis Ababa last summer and in several high-level meetings since then.

“Just yesterday at our ’Trade Dialogues’ event, a number of the businesspeople taking part raised trade finance as a pressing issue where action was needed,” Azevêdo said in a speech to the body.

WTO published a report titled “Trade Finance and SMEs: Bridging the gaps in provision,” which recommended that multilateral development banks examine institutional limitations in existing trade finance facilitation programmes to provide remedies for geographical disadvantages or working with certain operators.

WTO also recommended the size of finance programmes should be enlarged as some of current ones face pressure to increase trade financing limits. It said there may be scope for programmes – particularly newly established programmes in Asia and Africa – to do more.

“For example, in Africa, almost one third of all requests for trade finance is rejected by banks. In Asia, the estimated amount of requests for trade finance rejected is approaching one trillion dollars. All in all, the global trade finance gap is estimated to be around 1.4 trillion dollars annually. And the poorer the country, the more difficult it is.

“In developing countries, the alternatives to bank financing such as inter-company lending and factoring may simply not exist. Trade credit insurance may not be available, and the legal framework for factoring may not be in place,” said Azevêdo.

WTO stated that globally, 52 per cent of SMEs see requests for their trade finance rejected, against 7 per cent for multinational companies.

“I think this is a very striking contrast, and it is of particular concern as SMEs are a leading driver of trade and employment. These companies are responsible for the largest share of employment opportunities in most economies. In some developing countries, they employ around 90 per cent of the work force.”

It further advises that there is need to address the knowledge gaps in local financial institutions, increase dialogue with regulators and improve the monitoring of trade finance provision.