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Micro, small and medium enterprises (MSMEs) are critical to the health of global trade, but limited access to financing is constraining their ability to create jobs, deliver economic growth and contribute to the recovery from the Covid-19 pandemic.

In this Industry Perspective, Simon Paris, CEO of fintech company Finastra, and John Denton, secretary general of the International Chamber of Commerce (ICC), discuss the urgent need for a broader set of alternative financing resources for MSMEs, and outline how they have partnered on a strategic initiative to tackle the growing trade finance gap.

GTR: How big is the problem when we look at MSMEs and their struggle to access finance?

Paris: The pandemic has caused everybody to focus on their supply chains, but supply chain finance is still growing at less than the rate of global GDP. This is an enormous problem. MSMEs support more than 50% of employment worldwide and contribute up to 40% of emerging economies’ GDP. To put this another way, the lack of access to finance for MSMEs is keeping tens, if not hundreds, of millions of people locked into poverty.

Denton: The mismatch between demand and supply in trade finance hasn’t been tended to as well as people imagine it has been – and we see the result of that in the record US$1.7tn trade finance gap.

If you’re serious about economic development, if you’re serious about improving the prospects of the communities you serve, you have to enable MSMEs to function, and part of that functionality is being able to export. However, for many MSMEs the barriers to export are too high, because they simply can’t access the finance they need. It’s not that traditional suppliers of trade finance have failed; it’s just that the demand is beyond their capacity to deliver. But we can’t constrain the real global economy because of that demand constraint.

GTR: What are the ICC and Finastra doing to tackle this issue?

Denton: In September last year, the ICC established a CEO advisory group on trade finance (ATF), to advocate for addressing this topic. One of the group’s key deliverables was to produce a framework for reconceiving the trade finance ecosystem, which we published last month. But at the ICC, we don’t just look at problems and solutions at a theoretical level; we also look at practical things we can do, and so we were driven to create ICC Trade Now, a dedicated global campaign that offers a platform connecting MSMEs to innovative trade finance solutions.

Through Trade Now, we want to crowd in solutions from trusted partners whose values are aligned with ours, and, frankly, Finastra is incredibly aligned to the values of the ICC, because they take a long-term view and they do well out of doing good.

Paris: We believe that through technology, we can enable trade finance to reach geographies and business segments that historically we have not been able to reach, and we can do this in an authenticated, transparent way.

Together, Finastra and the ICC have also launched ICC TradeComm, a web-based platform that gives MSMEs the ability to access funding from bank and non-bank financiers on their electronic invoices, with transaction risk and diligence scoring carried out using an automated know your customer and know your transaction engine.

Through this solution, we are reducing trade finance barriers for MSMEs and enabling everyone to benefit from improvements in matching supply and demand. We have big ambitions, but we chose to initiate this in a single geography – Ecuador.

GTR: Why did you choose Ecuador for the launch of ICC TradeComm?

Paris: First of all, Latin America is generally an area that is underserviced: there aren’t many global banks offering supply chain payments programmes in Ecuador. But most importantly, there’s already a centralised registry of invoices in Ecuador, which was set up by the government. That adds authenticity and trust to the invoices that MSMEs present for finance through the solution, and enables them to raise working capital to help them grow and manage the cashflow of their business.

This will be an international solution. Overall, our plan is to take this solution into 48 markets over a six-year timeframe, and we are already seeing expressions of interest from other geographies, with Saudi Arabia being the most recent to do so.

GTR: Beyond improved access to finance, what are the benefits of this partnership to MSMEs?

Paris: There is a growing need for financial literacy, and technology can help provide this. If you’re a cashew farmer in Kenya, for example, technology can give you market transparency so that you can be sure that you are getting a fair price for your goods, and with greater financial literacy you can learn how to better manage your working capital to the extent that you can decide to finance 20% of your invoice instead of 100%. Through education and guidance, ICC TradeComm will seek to provide support to MSMEs – and this will also help to improve their financing risk profile over time.

Denton: One of the great challenges for MSMEs is information disequilibrium. They just don’t have access to the same quality and quantity of information. As the world’s most trusted business organisation, the ICC can act in their interest and give them access to the information that’s necessary for them to make decisions about how they can finance their exports.

More than two thirds of the ICC membership is now in developing and emerging markets, so this is a very sharp issue for us. We have formed a view that we not only should be describing the problems, but we should actually be part of the solution. We still have to grapple with numerous barriers to access to finance, from the arcane reliance of global trade flows on physical documentation to the regulatory treatment of trade finance, but by pushing ICC TradeComm, we believe we can unlock other opportunities to bridge the gap.

Paris: From Finastra’s point of view, by increasing access to alternative financing to MSMEs, we can simultaneously increase affordability. Technology can reduce friction, making things more seamless. More streamlining will lead to more automation, more trust and more transparency. This, alongside the ICC’s fundamental role in helping to get the right regulatory frameworks in place to ease up the administrative burden for MSMEs, creates a very powerful network effect.

Somebody once said to me that if a society or a country has a need for a good or service, either there is trade or there is conflict. If you care about doing good and doing well, then this is an issue of our time. It really is a US$1.7tn gap. It really is two thirds of the ICC’s membership. It really is the bulk of employees around the world. And it really is a here and now opportunity. There is a profound motive to focus on trade, and we are seizing the opportunity to resolve this problem through technology and collaboration.