Access to Trade Finance
In today’s market environment, commodity traders have been divided into large and small companies primarily based on their ability to respond to diverse market barriers. But among these two types of traders, it has been the small, medium sized enterprises (SMEs) who have struggled to access trade finance for their expanding operations.
The Asian Development Bank has reported a global trade finance gap at USD 1.5 trillion. It argued that SMEs were disproportionately affected across the board. In fact, approximately 56 % of their trade finance proposals are being rejected. For developing countries, specifically in the Asia-Pacific where proposal rejections are the highest, this will mean that the cost of trade will increase.
Consequently, SMEs have been turning to non-bank financial institutions for alternative funding capacity. Theses alternative lenders are offering structured trade and commodity finance as their primary financial solutions.
Taking this into account, access to financing is truly a significant factor in the conduct of trade. And alternative financing instruments offers opportunities SMEs trader to access to finance beyond traditional banking lines. This will eventually help them to secure both financial capacity and stability and hopefully grow out of the SME space.
References:
Commodity Finance Market Report – Allen & Overy. (2017, May 03). Retrieved March 5, 2019, from http://www.allenovery.com/SiteCollectionDocuments/Commodity_Finance_Market_Report_May_2017.PDF
Commodity Finance (SIC 19). (n.d.). Retrieved March 5, 2019, from https://www.tradefinanceglobal.com/finance-products/commodity-finance/
WORLD TRADE ORGANIZATION. (n.d.). Retrieved March 5, 2019, from https://www.wto.org/english/res_e/publications_e/tradefinsme_e.htm
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