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.
World trade volume index. Source: WTO; Federico & Tena-Junguito via Our World in Data (CC BY).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.
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.
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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