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Trade
OpinionComment
Victor Fung
Bob Sternfels
Marcus Wallenberg
Victor Fung,Bob SternfelsandMarcus Wallenberg

Macroscope | How small firms will benefit from simpler, integrated trade finance systems

  • Micro, small and medium-sized firms make up the backbone of the world economy but struggle to gain access to financing and global markets
  • The solution is to simplify processes and integrate isolated systems to help such firms access increasingly complex trade and supply chains

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Zhang Lihua prepares Shandong jianbing at a small restaurant in the eastern suburbs of Beijing. Small businesses make up almost 90 per cent of global firms and the majority of employment, but their access to global credit and markets will remain limited without greater interoperability in trade finance systems. Photo: Tom Wang
Victor Fung,Bob SternfelsandMarcus Wallenberg

Goods and services move around the world through the work of ships, trucks, planes, bytes and money. The US$5.2 trillion global trade finance system is as essential as the container or the data server to facilitate global trade.

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But it doesn’t always work as well as it could. According to the Asian Development Bank, the trade financing gap reached US$1.7 trillion in 2020, up 15 per cent from 2018. As a percentage of the global goods trade, the gap grew from 8 per cent in 2018 to 10 per cent in 2020.

For micro, small and medium-sized enterprises (MSMEs), the financing shortfall is even more acute as they account for around 40 per cent of trade finance application rejections by banks. These are the challenges that the International Chamber of Commerce’s (ICC) Advisory Group on Trade Finance has been wrestling with since its creation in 2020.

The problem has real-world consequences. MSMEs represent about 90 per cent of global businesses and the majority of employment. By 2030, the world will need to add 600 million jobs to absorb new entrants to the workforce, most of them in the developing world.
MSMEs will be a huge part of meeting that demand. In addition, supply chain bottlenecks are slowing economic recovery, depressing corporate profits and contributing to inflation.
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But this is also a problem with real-world solutions. Today, the trade finance system is characterised by a complex web of decades-old manual processes and isolated “digital islands” – closed systems of trading partners formed to address specific pain points. The answer is to simplify processes and integrate these islands so they can work together across networks and platforms.

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