One of the biggest reasons financial institutions are reluctant to provide trade finance to small businesses is rooted in the cost and complexity of anti-financial crimes due diligence and the perception of low returns on financial support from smaller firms, according to an Asian Development Bank (ADB) survey.

This was the view of 29 per cent of banks participating in the survey, which also concluded that businesses of all sizes continue to struggle to access sufficient credit, as international banks continue to trim correspondent banking networks to comply with new rules against unnecessary risk-taking, money laundering and terror funding.

Trade finance gap

The survey puts the global trade finance gap at US$1.5 trillion in 2016, a slight improvement compared with the 2015 record high of US$1.6 trillion.

In its fifth annual study, 2017 Trade Finance Gaps, Growth, and Jobs Survey, ADB quantifies market gaps for trade finance and explores their impact on growth and jobs through a survey of over 515 banks and 1,336 firms from 103 countries.

Drag on growth

Micro, small, and medium-sized enterprises have the biggest difficulties accessing trade finance, representing 74 per cent of total rejections in 2016, compared to just 57 per cent in 2015.

According to ADB, this high rejection rate means foregone trade, which is a drag on overall economic growth.

The ADB publication, 2017 Trade Finance Gaps, Growth, and Jobs Survey, can be found here.