Study: SMEs Have Toughest Time Accessing Trade Financing

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Small and medium-sized businesses account for about 53% of all rejected trade finance transactions, making this group most likely to be impacted by lending/working capital access, the recently released 2015 Global Survey on Trade Finance shows. The report, issued by the International Chamber of Commerce Banking Commission, also suggests compliance proved to be the biggest hurdle to trade finance.

Vincent O'Brien, chair of the ICC Banking Commission Market Intelligence, said this year’s report has “highlighted the severity of the trade finance gap — which continues to be impacted by regulation, despite the low-risk nature of trade finance — and particularly its impact on SMEs. This is crucial given SMEs constitute over 95% of all firms and account for approximately 60% of employment worldwide."

A total of 482 respondents from 112 companies participated in the survey. Of the trade finance applications submitted, according to the report, 45.7% were from SMEs and about 40% were from large corporations. Nearly 15% were submitted from multinational companies.

Of the trade finance proposals that were declined, 53% came from SMEs. Comparatively, nearly 80% of large corporations had their trade finance proposals approved, showing the difference in accessibility of trade financing between small and large enterprises. The lack of financing SMEs are receiving is making it hard for these small companies to access resources such as skilled labor, technology and information, which takes a toll on the overall health of the business, the report said.

Regulations proved to be a main reason banks declined transactions. A total of 70% of survey respondents pointed to the Know Your Customer/anti-money laundering regulations as reasons for declined transactions. Additionally, 80% cited anti-financial compliance requirements took a toll on their trade financing, up from the 69% reported in last year’s ICC report.

“Going forward, it is worrying to observe that 91% of respondents expect compliance requirements to increase over the next year, up from the 81% in 2014,” the report suggests.

Commenting on the report, Jason Busch, founder and managing director of Spend Matters, suggests, “Small and medium-sized companies are the lifeblood of economic growth for most economies. Alternative finance models not restricted by bank lending appear to bring the greatest hope to close the trade financing gap that the International Chamber of Commerce study suggests. Bank-led programs such as approved trade payables financing (i.e., supply chain finance) as well as factoring bring too many hurdles to make a significant dent in the gap.”

Additional findings from the report include:

  • 63.3% of respondents reported an overall rise in trade finance activity. This was something the ICC said came as a surprise, given how global trade has been growing at a slow rate in recent years.
  • 61% of banks said they increased their capacity in order to meet this growing demand for trade finance.
  • 71.9% of respondents reported an increase in trade finance net income during 2014
  • The falling price of commodities has taken its toll on trade financing: 18.5% of respondents said they experienced a rise in allegations of fraud and 16.1% reported an increase in court injunctions barring payment of bank undertakings.
  • 53.3% expect cost of confirmations to increase
  • 40.7% reported an increase in interest from supply chain finance
  • 66.1% of respondents said they would adopt stricter environmental and social criteria in respect of trade finance transactions

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