Philippines, 29 October 2021 (TDI): During the pandemic, the commercial development programs of ADB have significantly increased the number of sponsorships. Reflecting the growing market demand for the involvement of state-owned enterprises at a time when private sector power is being undermined, as evidenced by high levels of rejection.
COMMERCIAL FINANCE: ADB
Commercial finance, the financial backing importers and exporters need to keep international trade afloat which is essential for economic growth and development. Trade finances are a low risk for suppliers but are still difficult to find in many Asian businesses.
And this was so, in 2020 when the pandemic caused a global trade contract by 7.5%. This devastation may have been less severe, but there has been more money available to support trade.
But that is history as we move forward. Trade-related growth will play a major role in rebuilding the economy and rebuilding lives. But without adequate trading funds, such refunds will not be able to reach their full potential.
SMALL AND MEDIUM ENTERPRISES (SME’S)
Lack of finance, especially for small and medium enterprises (SMEs) has made it difficult for some companies to join the supply chain, missing out on additional contributions to much-needed growth and employment.
To better understand the size of the trade deficit and the impact of the pandemic on access to commercial finance. We have explored the latest gap, the reasons for it, and suggested a way to close those gaps. Perhaps unsurprisingly, the survey found that the situation had worsened.
It has shown that the estimated global trade finance gap has increased by about $200 billion (from $1.5 trillion to $1.7 trillion) between 2018 to 2020. As a percentage of global commodities, the gap has increased to 10% by 2020 from 8% in 2018.
WHY TRADE FINANCES ARE IMPORTANT: ADB
Trade finances are important, supporting 80% – 90% of global trade. Research has shown that the chances of commercial finance applications being rejected have increased significantly between 2018 to 2020.
The pandemic has led to an increase in the cost of trade and finance of factories due to land closures, service delivery disruptions, and related economic and financial risks.
The pandemic has highlighted the urgent need for trade to shift from paper-based to digital. Simplifying that system and ensuring that trade takes place under the same set of rules across borders can be a big step forward.
Improving the data collection of law enforcement and other authorities while making it easier for trade to thrive. The gap in trade finance is often a minor problem for the company.
BANKS RECEIVED BUSINESS FINANCING PROPOSALS
Research has shown that although SMEs make up about 20% of business financing proposals received by banks, compared to 54% of large companies. They account for about 40% of trade revenues.
The extra collateral required by banks to reduce the risk of SME lending continues to be one of the major barriers to the rejection of many SME commercial finance applications. Access is even more difficult for women-headed SMEs.
Among the female-owned firms interviewed, about 70% of their applications were rejected in whole or in part. Greater access to finance and support for the public sector is key to post-pandemic recovery.
Most of the SMEs surveyed believe their business will thrive in the first half of 2022 or later. In the process of recovery, one-third of the firms noted that the lack of access to finance. Was one of the biggest obstacles to be addressed in the coming year.
However, public sector support is relatively small against the size of the market gap and won’t go nearly for enough to narrow it. What is needed is more involvement of the private sector. Which includes closer to the public sector by financing activities, for example.
Additional granular data including default and loss statistics by country would also help the private sector gain a better understanding of the needs, opportunities, and risks of trade finance.
The pandemic has helped highlight the weaknesses associated with global provision. Improving access to finance will bring growth and jobs to the world where they are most needed.
