CREATING INITIATIVES FOR CLOSING THE TRADE FINANCE GAP, September 2025

Contributed by Michael Bickers, BCR Publishing

Closing the global trade finance gap, (estimated at US2.5tn), has been one of the themes of several international trade and development conferences over the last few years, particularly the last two. ITFA is one of the organisations that has given it greater prominence. At its recent annual conference in Singapore, in September, one of its sessions was: Closing the trade finance gap: Turning commitments into actions. A panel of four industry experts reviewed current and potential initiatives.

The panel consisted of: Steven Beck, Director, Trade and Supply Chain Finance, Asian Development Bank (ADB; Nathalie Louat, Global Director Trade and Supply Chain Finance, International Finance Corporation (IFC); George Wilson, Chief Executive Officer, ARM Africa Trade Finance Fund; Gwen Mwaba, Managing Director Trade Finance & Correspondence Banking, Afreximbank.

The moderator was Duarte Pedreira, Global Head of Trade & Working Capital Finance, Crown Agents Bank, and Board member – Head of Institutional Relations and Head of Emerging Leaders, ITFA.

The Washington declaration

Duarte Pedreira reminded the conference of what has been achieved so far. In Washington D.C. in October 2024 the ITFA and the International Finance Corporation (IFC) launched the inaugural trade finance conference of parties (TF COP). It brought together public and private sector bodies and associations “not to discuss problems, but to discuss solutions,” to closing the trade finance gap.

The resulting communiqué was the ITFA Washington Declaration. It set out three commitments: firstly, to work together as an industry to eliminate the finance gap by 2040 and to halve it by 2030; secondly, to work together to lobby, particularly the United Nations, to have the trade finance gap recognised as a formal hindrance to the United Nations’ Sustainable Development Goals (SDGs); thirdly to set up a task force as the executive body of TF COP. Pedreira commented: “We wanted it to be the largest, widest, deepest ever coalition set up in the trade finance industry, and we have achieved that.”

The operation of TF COP is now focused on two main streams, he said.

The first is a think tank, “to speculate about the future, bringing people together, listening to all the different parties, because that is the only way we are going to create the solutions.” The second is to create specialist working groups. So far there is a working group covering Africa, and one on sustainability, while an insurance working group is waiting to be approved. In addition, there will be one looking at regulatory issues. The really interesting aspect of all this, Pedreira said, “is that the trade finance industry is creating its own incubator, in that different members of the task force will be able to pitch to other members and test solutions.” He added: “This is all real, this is not theoretical, we are meeting again in Washington in October.“

The forthcoming report on trade finance

This October TF COP will publish its report on trade finance. Steven Beck, who has helped to put the report together, gave a preview of its contents. More than 100 banks, representing 30 per cent to 40 per cent of the global trade finance market, provided data, and confirmed that the trade finance gap currently stands at US2.5tn. A significant majority of the banks surveyed expect to see an increased trade finance demand, largely as a result of the new geopolitical environment, e.g., the drive to diversify trade relationships, the acceleration of intra-regional trade and the reconfiguration of supply chains. These changes will require an increase in funding and in risk innovation.

The report will make four recommendations: 1) exploit the potential of supply chain finance to close the funding gap; 2) develop deep tier supply chain finance; 3) make the trade finance register more robust and more granular, and develop a more robust discussion with regulators around aligning capital requirements to risk profiles; 4) accomplish our goals of digitalising trade by 2030, in order to make the whole process of importing and exporting, from documentation to logistics, warehousing, finance and customs etc a seamless, frictionless electronic process.

The role of Multilateral Development Banks

Duarte Pedeira moved the discussion on to the role of the Multilateral Development Banks (MDBs). Turning to Gwen Mwaba (Afrexmibank), he said: ”They were created for getting to where the private sector doesn’t want to get to, so you really still depend upon them to deal with the riskier parts of the market. How does that feel?”

She replied that it is absolutely key that MDBs continue to collaborate with the private sector, because there is always a risk that commercial banks assume that an MDB is better placed. However, she said that we at Afreximbank, have realised that just giving out loans and guarantees will not solve the problem. “Some of the constraints faced by private sector players is that they need more patient capital which the MDBs cannot provide.” She explained how Afreximbank had met that challenge. “We established a subsidiary which is essentially our private equity arm, which is better placed to inject that patient capital, shore up the balance sheets of private sector players, so that the banks can give them the loans that they require.” She added: “We will need MDBs for a long time to come.”

Nathalie Louat was asked why the TF COP initiative is important for the IFC. She replied: “The US2.5tn hides a lot of realities. We work in the lowest income markets. We hope that this initiative will translate into more SMEs having more access to trade finance, but it goes beyond the financial issue. It is about the economic story we are trying to build together.”

What part can the non-bank institutions play in closing the finance gap?

For George Wilson, (ARM Africa Trade Finance Fund), the answer lies in creating a marketplace through sustainable trade development partnerships. It requires the aggregation of trade credit and other assets into packages that can actually be invested in by international investors. He added that the MDBs are doing the best they can, but there is a limit to how much they can deliver. They need to be multiplied in number.

What is important is getting the fundamentals right. He explained: “The first thing we need to do is to be less puritanical about what qualifies as ‘trade’ and deserves our support. In the trade finance community, we define trade as being event driven with all our technical constructions, but to an African businessperson it is trade finance if it pays for their goods.” 

He added: “So first, let’s support them, and give financiers more incentive to finance trade, then once it is more profitable we can then move to adding in product development. No sane banker or financier will put scarce capital resources into developing trade finance products when they don’t make any money. So the financing has to be profitable first, and then when it is profitable we can establish partnerships with the MDBs and the DFIs in order to get support in the form of technical assistance grants and guarantees in order to start creating true trade products.”

He continued: “It’s a journey towards those true trade products. But if you withhold support to incentivising until the banks and the trade financiers have a fully functioning SME finance platform, we will never get going.”

How does the trade finance gap look from an international perspective?

Nathalie Louat, (IFC), showed that trade finance issues vary widely across the globe. She said: “We know that in Africa we need to do a lot of work with the regulators to strengthen the regulatory systems. That’s a major priority. We need to de-risk the banks in Africa so that they can do more. In Latin America there are very different issues: the market is very concentrated in a few of the large banks and there are not enough opportunities for the smaller banks to develop financing programs. In the Middle East you have political uncertainties that make it very difficult for institutions to create trade finance programs.”

Turning to Asia she said: “In Asia what you do need is to help the SMEs, which are mostly in low value supply chains, and they need to be supported, not just on an open the account basis. When we work in countries such as Cambodia, which we regarded as quite developed in terms of trade, we saw that there are very few innovative products such as supply chain finance, while in Vietnam only 2 per cent of the trade finance available was supply chain finance. So there is a need to develop these products. We believe that overall, the trade finance gap can be overcome by multiple approaches and through collaboration.”

What has been tried in Asia that has worked so far and could be tried at local level?

Steven Beck (Asian Development Bank) replied: “As a start I would point to the recommendations in ITFA’s forthcoming report. I think all the MDBs are scaling up supply chain finance in support for markets, developing interesting innovations where there are gaps and potential, but it is not easy. On the regulatory front we are working with regulators and governments to ensure that there is a proper regulatory environment such that we can scale supply chain finance.”

He added: “We are providing some very intensive technical assistance to local banks on how to conduct supply chain finance, because most of them don’t know how to do that.  As regards deep-tier supply chain finance, we are now in the process of trying to find a bank that will do very deep-tier supply chain finance across borders. This could take some time. We’re also working on a trade finance register.”

Closing the trade finance gap is also about doing things differently

Gwen Mwaba, (Afreximbank) reminded delegates that in Africa many economies depend upon the extractive industries, which now face a funding challenge as financial institutions are being encouraged to invest more in renewable energy than in fossil fuels. At the same time, climate change is affecting much of Africa severely: nine of the 11 countries most affected by climate change are in Africa. Africa itself contributes less than 2 per cent to global carbon emissions.

Given these financial and economic tensions, Afreximbank took the “deliberate decision” to focus on climate adaptation, “helping those countries that are the most affected by climate change, and supporting those countries that need to finance the production of fossil fuels in a responsible manner.”  So, to that end Afreximbank “tapped into the international bond market and the international loans market for oil and gas assets, working in collaboration with petroleum producers in Africa to create an African energy bank to focus solely on financing oil and gas transactions so that Africa can continue to benefit from those industries.” In June 2024 Afreximbank and the African Petroleum Producers Organisation (APPO) signed the establishment agreement for the Africa Energy Bank. (At the time of the agreement the AEB said that while the focus will be on funding oil and gas projects it will not close its doors to renewable energy projects. Africa has the largest proportion of the world’s population living without access to modern energy).

Afreximbank has also played an important role in securing finance for the oil industry in Suriname. In May 2025 the bank acted as global coordinator and joint mandated lead arranger of a US1.6bn facility for Suriname’s State-owned energy company. The project being financed has a low carbon design featuring a fully electric floating production, storage and offloading unit. Both these recent initiatives are aimed at supporting sustainable development.

Supportive international developments

George Wilson said that the International Conference on Financing for Development held in Seville in June 2025 and the UN’s declaration on Sustainability, have together been “absolutely transformative.” What has emerged, he said, is that ESG is now recognised as having two parts. On the one hand it is about financial institutions operating according to ESG standards and compliance, which they can verify, and at the same time it Is about “delivery towards ESG goals.” He emphasised: “That is what closing the trade finance gap is very clearly assigned to do by the UN.” In other words, closing the trade finance gap is seen as a necessary precursor to sustainable development.

(That is made very clear in the Outcome Document of the Seville conference, which states that “the facilitators of the conference believe that its implementation will lead to the reform of the international financial architecture, address the cost of borrowing, and scale up investment to close the financing gap for sustainable development.”)