Huge gap in trade finance hits growth, jobs in Asia

Companies operating in developing Asia lost out on nearly $425 billion in trade finance in 2011 alone, according to a new survey by the Asian Development Bank (ADB).

"Dramatic shortfalls in meeting financing needs of importing and exporting companies are exacting a huge toll on job creation and economic growth in the region," said head of Trade Finance at ADB Steven Beck. "These trade finance gaps need to be addressed to give developing Asia a boost to create jobs and alleviate poverty."

Trade finance is the lending and guaranteeing that supports import and export transactions and is critical to international trade.

In the survey, conducted in the fourth quarter of 2012, 138 companies said that a five per cent increase in trade finance support would result in an increase of production levels by two per cent and staffing by another two per cent, underscoring the strong links between trade finance, economic growth, and job creation.

According to the 106 banks surveyed, almost $2.1 trillion worth of trade finance proposals were received in Asia, but $425 billion in trade finance requests were not approved. The surveyed banks' reasons include the poor payment records of their correspondent banks, low ratings of developing countries, and weak banking systems.

At the global level, $1.6 trillion out of the $4.6 trillion proposed trade finance was not met.

ADB’s Trade Finance Programme fills market gaps for trade finance by providing guarantees and loans to banks to support trade. In 2012 alone, the programme supported $4 billion in trade through 2,032 transactions involving 1,577 small and medium-sized enterprises.

Backed by its AAA credit rating, ADB’s Trade Finance Programme works with more than 200 partner banks to provide companies with the financial support they need to import and export through Asia’s most challenging markets. ADB’s programme currently operates in 18 countries including Nepal, and is focused on the poorest markets.

ADB had signed trade financing agreements with around a dozen domestic commercial banks — including Bank of Kathmandu, Everest Bank, Himalayan Bank, Kumari Bank, Nabil Bank, Nepal SBI Bank, NIC Bank and Nepal Investment Bank — with an aim to promote international trade and help Nepali banks forge alliances with banks overseas.

Bangladesh, Mongolia, Pakistan, Sri Lanka, Uzbekistan and Vietnam are the six most active countries under ADB's Trade Finance Programme. The programme is in the process of expanding to Myanmar.

The survey marks the first attempt to quantify gaps for trade finance and to link those gaps to growth and jobs.