Boost trade finance for Asia's poorer countries and smaller companies

TRADE finance is the lifeblood of international trade which has powered Asia's economic growth over the past decades. The availability of trade finance fell sharply during the global financial and economic crisis - and the hangover is still being felt several years later. The worry from a development standpoint is that Asia's poorer though economically promising countries and smaller firms across the region are especially struggling to obtain finance from commercial banks to guarantee trade transactions and manage trade risks.

Yet, expanding access to trade finance - and making it more inclusive - is an excellent business proposition. Asia's exports and imports nearly quadrupled in value since 2000 and intraregional trade - accounting for some 55 per cent of the region's total trade - is growing briskly. But in many cases, international banks continue to shy away from some developing countries in Asia. The Asian Development Bank (ADB) estimates the shortfall in trade finance in the region at US$425 billion.

Greater recognition of the low risk associated with trade finance is needed in the banking community. The evidence for this is strong: the 2013 International Chamber of Commerce Global Risks Trade Finance Report shows average default rates at an extremely low 0.02 per cent on a transaction basis, a pattern that held even during the global economic crisis. A recent evaluation of ADB's trade finance programme showed zero defaults. A well-standardised framework for this type of financing, collateral underlying trade transactions and short tenors are the main reasons why trade finance is a safe bet, all things considered.