Compliance costs widening trade finance gap according to ADB

Small- and medium-sized enterprises (SMEs) and emerging markets are increasingly marginalised in the trade finance market according to the latest findings of the Asian Development Bank (ADB).

The bank’s Trade Finance Gap Survey says global availability of trade finance improved in 2014 but gaps were increasingly pronounced in emerging economies, including in Asia, driven by banks’ decision to move away from high-risk markets.

Widening gap

The global trade finance gap was estimated at $1.4 trillion for 2014, of which around half was in developing Asia.

Banks highlighted the rising costs and complexity in complying with regulatory requirements to prevent financial crimes, including money laundering and terrorism finance, as a top impediment to trade finance, partly due to the lack of clarity on their implementation.

Negative impacts

The impact of this was felt most in Africa, the Russian Federation, Central Asia, and North America.

The study also found that SMEs were consistently underserved by financial institutions and faced the highest rejection rates for trade finance.

Companies noted that higher prices for trade finance accelerated in the second half of 2014.

Compliance pressures

With compliance measures expected to tighten further, the study notes that this will put more pressure on economies already experiencing gaps in access to financing, with SMEs particularly affected.

Companies surveyed noted that if trade finance available to them was doubled they would significantly boost production and exports, hire more staff, raise salaries, and invest in other business, highlighting the critical importance of trade credit to economic growth.

Addressing the issue

There is a need to address these issues, according to head of trade finance at ADB, Steven Beck.

“Trade continues to be the engine of growth and employment in the region, so addressing the financing gaps will be critical to promote growth and job creation especially in the more challenging markets,” he says.

The bank’s Trade Finance Gap Survey can be found here

Categories: Trade Based Financial crimes News

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