While COVID-19 continues to harm people in every corner of the world, international practices, such as trade, have the potential to produce a multitude of benefits and support economic recovery from the crisis. But trade depends on the availability of trade finance; today, more than ever before, cooperation between public and private sectors is required to both navigate out of the calamity and rejuvenate top pre-COVID-19 goals such as sustainability.
Trade finance fuels trade; if firms are unable to access it, this can have significant consequences for business development and global commerce. The current US$1.5 trillion gap between the demand for and supply of trade finance is undeniably a substantial barrier to economic growth. A recent BNY Mellon survey canvassed industry participants to discover what steps they think should be taken to close the gap, and the results point to two potential sources of relief: technology and regulatory revision.
In spite of the recent rise of protectionism amongst major trade partners, international trade growth is strong, with emerging markets providing the main impetus. Trade growth could be even stronger if not for the shortfall in trade financing supply relative to demand, a gap that is partly due to regulation compliance. Technology is coming to the rescue, not only in addressing the trade finance gap but ameliorating operations throughout trade channels.
Emerging markets are already looking forward to 2019, glad to see 2018 nearly behind them. It turned out not to be a good year for emerging markets as a whole, after being on top of the world in 2017. Factors beyond their control—such as the monetary-tightening regime in the United States and high-flying dollar, trade wars and market corrections in developed economies—are largely to blame, but recognizing this will not erase the pain.
Chinese president Xi Jinping calls it the “project of the century”. Part of his roadmap to Chinese prosperity, the Belt and Road Initiative (BRI), presents opportunities not only for Corporate China but for financial institutions and corporates the world over.
The push on global trade to continue accelerating has not let up; but without sufficient trade finance, it will be restrained from keeping up the pace. With increasing appetite for purchasing pools of receivables—but a keen awareness of the associated risks—a growing number of banks are turning to Excess of Loss (XoL) trade credit insurance. How are banks leveraging this type of insurance to grow their trade-finance portfolios?
After two decades of innovation, the benefits of digitisation are becoming clearer to banks, corporates, carriers and many of the other parties involved in international trade.
Trade is the growth engine that empowers the world’s economies. Although circumstances such as the shortage of available trade finance to SMEs limit its operation, other factors such as technology, global governance and education are energizing its transformation into a vehicle carrying the world on an exciting journey toward shared global prosperity.
Doing business around the world has always involved risk, but today risks seem to be multiplying, influencing the willingness of businesses to branch out. On top of slow growth and deflation, 2017 could be a challenging year for the global economy—and yet risk-management strategies such as insurance can alleviate the impact.