Description
A significant share of global trade is financed by some form of credit, guarantee, or insurance – a broad set of financial instruments jointly labeled as trade finance. Yet in the last three decades, global trade growth rates have not been matched by the rising availability of trade finance, resulting in a growing trade finance gap. In its 2019 report, the Asian Development Bank estimated the global trade finance gap at US$1.5 trillion, with importers and exporters from the Global South being the most affected. This gap has even deepened during the COVID-19 pandemic. In response to the constantly growing shortfall of trade finance Regional Development Banks (RDBs) have been launching numerous Trade Finance Programs (TFPs). The RDBs’ engagement in trade finance facilitation can be justified by the fact that trade finance constitutes a valuable tool to eliminate trade barriers for developing countries as well as a development finance mechanism.
This paper assumes that RDBs can play a crucial role in eliminating the trade finance gap indirectly limiting the presence of developing countries in international trade. The paper aims at analyzing both the determinants of insufficient availability of trade finance in the Global South as well as individual efforts by the MDGs to facilitate access of developing countries to trade finance. A separate part of the paper investigates challenges to trade finance in the COVID-19 era, and support provided by the MDBs to boost availability of trade finance instruments during the pandemic.
