The World Trade Board has opened consultation on a framework to increase access to trade finance for micro, small and medium enterprises (MSMEs), as it aims to corral stakeholders into co-ordinated action to close the ever-widening trade finance gap.
Formed at the inaugural World Trade Symposium in 2016, the World Trade Board promotes a harmonised global trade agenda among policymakers and the private sector. Its prior work includes the execution of the International Chamber of Commerce’s (ICC) digital trade roadmap, which led to the adoption of digital rules, the establishment of a standards body for digital trade, legal reform in a number of countries, and an increase in investment in digital trade.
With its latest initiative, the group is now focusing on tackling the mismatch between demand for and supply of trade finance among MSMEs – an issue that has long plagued the industry.
Developed with contributions from industry bodies and stakeholders including the ICC UK, the International Finance Corporation, the Bankers Association for Finance and Trade, the International Trade and Forfaiting Association and FCI, the Financial Inclusion in Trade Roadmap lays out a plan to harness the collective knowledge, expertise and technology required to unlock the potential of MSMEs in global trade.
“Countless businesses, particularly in developing economies, are unable to grow and thrive because they simply cannot access trade finance,” Simon Paris, chair of the World Trade Board, tells GTR. “With such untapped potential there is plenty of appetite to tackle the issue, and many innovative initiatives are having a positive impact. However, this good work is still being outpaced by the growth of the trade finance gap, meaning we need to accelerate. Instead of more solutions, we have identified initiatives that have the most potential for impact and created a framework for wide adoption. With energy focused in this way, we believe we can move further, faster and deliver inclusive, fair and sustainable trade.”
According to the Asian Development Bank’s most recent trade finance gap report, despite accounting for only 23% of all trade finance applications, MSMEs make up 40% of trade finance rejections from banks. While there are many factors holding back MSME access to trade finance, the World Trade Board has identified five key areas where diverse stakeholders can align towards driving improvements: digital infrastructure, legal and regulatory infrastructure, data infrastructure, technical assistance, and new funding sources.
To ensure that the roadmap leads to results, the group has identified clear lines of responsibility for parties including standards bodies, governments, banks, multilaterals and industry associations.
“Building on the experience of implementing the digital trade roadmap, we now want to see if we can do the same thing for financial inclusion,” says Michael Vrontamitis, deputy chair of the World Trade Board. “With this consultative roadmap, we are identifying the concrete actions that can be done, how these can be communicated clearly to the people who have the power to make the change, and how the value of this change can be demonstrated.”
Action points include the mandated utilisation of digital identities such as the Legal Entity Identifier, the adoption of e-invoicing at scale to generate credible and robust data to support new capital models, and capacity building for smaller financial institutions to enable them to better serve MSME clients.
The World Trade Board has already taken its first steps towards operationalising the roadmap, with work underway to develop an infrastructure to encourage investment in credible MSME trade finance assets. The group is currently convening fintechs, fund managers, development banks and insurers to establish a new credit-enabling and enhancement first-loss blended finance fund in Africa, which can be replicated elsewhere.
“The World Trade Board has brought together a group of committed and expert stakeholders to take on a perennial and often discussed but rarely actioned, critical challenge,” Alexander Malaket, World Trade Board member, tells GTR. “We know the issues, and we now have a credible framework and approach together with the right players at the table to move decisively to meaningful action and impact. The roadmap has real potential to be transformative, starting with Africa and then beyond. This is a starting point, and we will need engagement that also helps create the necessary enabling environment from a policy and regulatory perspective to scale globally.”
Before the roadmap is made final, the World Trade Board is asking for input from all stakeholders to ensure that its aims can be carried out as broadly as possible.
“We now invite the industry to provide feedback that will improve the roadmap, then partner with us on implementation,” says Vrontamitis.