The Trade Finance Gap: Size, Causes, And Practical Ways To Close It

The Trade Finance Gap: Size, Causes, And Practical Ways To Close It

The shortfall between demand for bank-intermediated trade finance and available supply sits in the trillions. SMEs and emerging markets carry most of the pain. This page lays out the numbers, why the gap persists, and what actually moves capacity.

Financely designs underwritable structures, routes risk to the right balance sheets, and helps sponsors close with clean documentation. Our focus is bank-grade controls, MDB and insurer participation, and scalable programs that pass credit screens.

What We Mean By “Trade Finance Gap”

Demand from credible buyers and sellers for instruments and working capital lines exceeds what banks and non-banks can supply. This includes LCs, standby LCs, confirmations, documentary collections, forfaiting, pre- and post-shipment finance, and supply chain finance programs.

Scale And Direction Of Travel

Benchmarks place the global trade finance gap around US$2.5 trillion. At the same time, trade volume expanded faster than bank capacity and correspondent networks, especially after post-crisis capital rules and sanctions waves.

Growth of global trade index 1800–2024, Our World in Data
World trade volume index. Source: WTO; Federico & Tena-Junguito via Our World in Data (CC BY).
Trade as a share of GDP by country, Our World in Data
Trade openness trend across economies. Source: UN/WTO via Our World in Data (CC BY).

Why The Gap Persists

Driver What Happens In Practice
Compliance and sanctions cost High fixed KYC and screening cost per counterparty makes small tickets uneconomic. Banks avoid thin-file SMEs and riskier corridors.
Capital and USD liquidity RWA, leverage, and funding charges cap LC and pre-shipment lines. Limits bind first in EM corridors.
Correspondent shrinkage Fewer confirming banks and closed corridors raise friction and pricing.
Information gaps Sparse financials, weak collateral perfection, and manual documents push up expected loss.

Who Feels It Most

Exporters and distributors in Sub-Saharan Africa, South Asia, and parts of MENA. Rejection rates are higher for SMEs, and the pain concentrates in pre-shipment working capital.

What Actually Closes The Gap

1) Risk Distribution And Guarantees

Confirmations, unfunded participations, and credit insurance assignment let originators write more without blowing through limits. MDB risk-sharing programs add capacity where banks cannot.

Exports trend proxy for capacity context, OWID
Export growth underscores capacity needs. Source: Our World in Data (CC BY). See BIS CPMI for correspondent network analysis.

2) Supply Chain Finance

Buyer-led programs extend investment-grade credit to SME suppliers. Eligibility matrices, clean onboarding, and data pipes reduce expected loss and pricing.

3) Digital Documentation And Legal Rails

Electronic documents of title, interoperable e-bills, and audit trails cut fraud and unit cost. Alignment with MLETR improves enforceability and speeds confirmation.

4) New Capital Into Trade Assets

Private credit funds and insurers absorb mezzanine or first-loss tranches. Banks keep origination and servicing while distributing risk to investors with the right mandate.

Actions Sponsors Can Take Now

Action What To Prepare
Make programs underwritable Audited financials, AR aging, Incoterms mapping, flow of funds, buyer concentrations, tax and legal in order.
Stand up controls Collateral management, inspection, eligibility tests, insurance confirmation, blocked accounts.
Route risk Accept insurer assignment or confirmers, allow unfunded participations, price to expected loss.
Digitize documents MLETR-aligned e-docs and audit trails that reduce manual exceptions.

Key Numbers And Source Links

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Disclaimer: Financely acts as arranger and advisor through regulated partners. We do not hold client funds. Any documentary credit, standby letter of credit, or guarantee is subject to underwriting, KYC, AML, sanctions screening, legal documentation, perfected security, and approvals by issuing banks and lending counterparties. Nothing here is a commitment to lend or issue.

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Disclaimer: Financely provides financing based on due diligence and feasibility. Approval is not guaranteed, and past performance does not predict future outcomes. All terms are subject to review. Financely primarily assists with structuring and distribution. Qualified parties carry out the project if the client approves the proposal.

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