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A group of development banks have pledged to expand the availability of supply chain finance (SCF) in emerging markets, and are calling on financial institutions to do more to support further growth. 

A communique issued by the World Trade Organization (WTO) and signed by six multilateral development banks says SCF is “essential for enabling emerging markets firms, particularly small and medium-sized enterprises, to participate in both global and local markets”. 

Such programmes allow suppliers to receive early payment on invoices from a third-party financier, and because rates are tied to their buyers’ credit ratings, facilities typically come at a lower cost than alternative forms of finance. 

However, the WTO communique says that in low-income and fragile countries, availability “is scarcer than traditional trade finance due to weaker financial and legal infrastructures”.  

As a result, those markets are suffering “missed economic opportunities”, it says. 

The communique follows talks between the WTO and multinational development banks in Washington, DC last week, which took place on the sidelines of annual meetings of the World Bank and International Monetary Fund.

Participants pledged to increase the level of financial support given through existing SCF programmes, and to work with financial institutions and fintechs to improve the diversity and availability of products. 

They have also vowed to collaborate on improving regulatory frameworks, promoting marketplaces, driving the environmental and sustainability agenda, and building market awareness and capacity. 

As well as the WTO, the communique is signed by the International Finance Corporation (IFC), the African Export-Import Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, IDB Invest and the International Islamic Trade Finance Corporation. 

“We also call on financial institutions to support SCF markets growth in emerging markets,” it says. 

WTO director-general Ngozi Okonjo-Iweala told attendees at the Washington, DC event that the global SCF market has grown rapidly and is valued at around US$2.3tn, boosting trade and easing the financial burden on smaller suppliers. 

“WTO research shows that a 10% increase in the use of international factoring – the main type of supply chain finance used by small businesses to secure immediate cash against unpaid invoices – can boost countries’ trade by 1%,” she said. 

Makhtar Diop, managing director of IFC and co-host of the event, said: “Supply chain finance is crucial for empowering emerging market firms, especially SMEs, to engage effectively in both local and global value chains. 

“By providing access to vital financial resources, it enables these businesses to thrive, fostering growth, and generating quality job opportunities.” 

However, Okonjo-Iweala said small businesses in developing economies are not fully realising these benefits. 

She cited WTO and IFC research finding that in Vietnam and Cambodia, just 0.5% of trade is supported by SCF programmes from local financial institutions. 

As well as regulatory barriers – currently an area of focus for IFC – adoption is held back by high costs and inadequate technological infrastructure, she said. 

In Africa, UN research has found lenders struggle to offer low-cost programmes due to a lack of credit information, limited use of digital technologies and a “disproportionately high-risk perception” of smaller suppliers. 

Worldwide, around half of trade finance applications from smaller businesses are rejected by lenders, and those that are approved can cost more than double those provided to larger companies, the WTO reported last month.