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 Steven Beck, Head of Trade Finance at ADB. “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 5% increase in trade finance support would result in an increase of production levels by 2%, and staffing by another 2%, 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. Reasons cited by the surveyed banks include the poor payment records of their correspondent banks, low country ratings in 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 Program (TFP) fills market gaps for trade finance by providing guarantees and loans to banks to support trade. In 2012 alone, the program 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 TFP 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 program currently operates in 18 countries, and is focused on the poorest markets. Its six most active countries are Bangladesh, Mongolia, Pakistan, Sri Lanka, Uzbekistan and Viet Nam. TFP 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.