The much-publicized US$1.5 trillion global trade finance gap, as reported by the Asian Development Bank (ADB), continues to present challenges for global trade. Critically, the size of the gap is affecting development and investment flows and financial inclusion, which in turn, is impacting business and economic growth. Addressing the gap is, therefore, understandably a key concern and a priority for the trade finance industry. This lack of financial inclusion could have a detrimental impact on the wider economy, with persistent trade finance rejections potentially cutting off some businesses from the trading ecosystem—particularly those in certain small countries with limited financial markets.1
In light of this, BNY Mellon—with support from the International Chamber of Commerce (ICC)—has conducted a global survey titled Overcoming the Trade Finance Gap: Root Causes and Remedies. Carried out between April 2018 and January 2019, the survey asked more than 100 global bankers, regional and domestic banks, specialist trade providers and other market participants from around the world to help pinpoint the factors that are driving the gap and what might be done to address them. As well as analyzing overall outcomes of each question, we also drilled down into the results according to type of institution in order to identify institution-specific trends and patterns.
Although credit was cited as an issue, our survey supports existing findings that compliance costs are a key—though by no means the sole contributor—to the volume of rejected trade finance transactions. Of particular note, our findings also revealed that trade finance rejection rates accelerated in a third of institutions surveyed during the previous year. This is a worrying trend, and emphasizes the very real need for effective action to help narrow the gap—and ensure it doesn’t widen further. Participants identified two potential solutions as equally important: regulatory revision and technology, with respondents highlighting the value of centralized know your customer (KYC) databases in particular with respect to how technology could help. The survey also investigates what could most effectively help to drive regulatory revision, and the role of correspondent banks in helping to close the gap.
Our survey reconfirms the ongoing issue of the trade finance gap. It is imperative that we continue to seek and implement the means to enable businesses to connect effectively to international value chains and help global trade to realize its full potential.
We would like to thank those who contributed to our survey. We hope that publishing our findings on the perspectives of industry specialists will help to pinpoint how the trade finance gap can best be addressed, and act as a platform for further discussion.
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Chief Executive Officer, BNY Mellon Treasury Services
Paul Camp is the Chief Executive Officer of BNY Mellon Treasury Services and a member of the BNY Mellon Executive Committee, the company’s senior-most governing body. The Treasury Services business offers solutions in global payments, trade services, cash management, and foreign exchange. It operates in 36 countries, helping organizations optimize cash flow, manage liquidity, and make payments more efficiently in more than 120 currencies. Its services help clients conduct payment operations, ensure adequate liquidity, and manage risk.View Profile