20 January 2020
Finance for Impact conducted a strategic study for the IFC Board, examining trade opportunities and constraints in global markets. The purpose of this study was to provide an overview of trade finance coverage worldwide. The immediate impetus for carrying out such analysis was to inform and assist IFC in understanding the strengths and weaknesses of trade finance markets. The study addressed specific questions: What is the added value of trade in terms of poverty reduction? What is the role of trade finance in developing countries? What kinds of financing arrangements are used most commonly? Are banks currently facing capacity constraints on trade finance? What are the sectors of growth for which the demand for trade finance would be the highest? How do specific external and internal market and institutional constraints affect the supply of trade finance? If there is a lack of trade finance at the global level, how effective are current multilateral institutions in supporting the trade agenda? To what extent trade finance programs of multilateral development banks help fill gaps?
On the short run, our analysis confirmed global trade is stalling, with downside risks predominating. On the long run, the outlook is more optimistic due to the emergence of new trade corridors and boosted south-south trade. Technological innovation offers a great potential for global trade in the future. We also demonstrated that international trade is an engine for inclusive economic growth, contributing to poverty reduction. We reviewed several major studies that shows that trade liberalization and global poverty reduction demonstrate complimentary trends. The process of export development in international trade can significantly benefit the smaller economies and firms. We provided evidence that a steady flow of recurring availability to trade finance is essential to trade. Although data on trade finance were extremely limited prior to the global financial crisis, information gaps have been reduced in past years, showing that access to finance for corporates, in particular smaller businesses, remains a major constraint.